In a significant development regarding India's monetary policy, the Reserve Bank of India (RBI) announced on Wednesday its decision to maintain interest rates despite robust economic growth and inflation concerns. The central bank decided to keep its key repo rate unchanged at 6.50%, while the standing deposit facility rate remained at 6.25%.
Additionally, both the marginal standing facility rate and the bank rate were held steady at 6.75% after a three-day policy session concluded. This development is notable as the RBI highlighted a shift in its policy stance from 'withdrawal of accommodation' to a 'neutral' position, which could suggest the prospect of rate cuts in the future.
The central bank's annual inflation target rests at 4%, with a permissible deviation of plus or minus 2% based on the nation’s consumer price index (CPI). After reaching a peak of 7.79% in April 2022—affected by price surges linked to both the pandemic and post-pandemic recovery—inflation in India has begun to cool down.
Since April 2022, the RBI increased key rates by a total of 250 basis points, but has held them steady in recent months. Looking ahead, the RBI forecasts a CPI increase of 4.5% year-on-year for fiscal 2024, which began on April 1. For the first quarter of fiscal 2025, they anticipate inflation will post at 4.3% year-on-year.
Furthermore, the RBI projected that India's gross domestic product (GDP) would expand by 7.2% year-on-year in fiscal 2024, followed by a 7.3% rise in the first quarter of fiscal 2025. The RBI's monetary policy committee acknowledged the resilient domestic growth outlook, attributed to key drivers like private consumption and investment.
This sound economic foundation may allow for a more accommodative monetary policy aimed at ensuring inflation aligns sustainably with the established target..