Jaipur, October 07, 2023.

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) after a detailed assessment of the evolving macroeconomic and financial developments and the outlook, decided unanimously to keep the policy repo rate unchanged at 6.50%. 

Consequently, the standing deposit facility (SDF) rate remains at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%. 

The MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

Explaining the MPC’s rationale for these decisions on the policy rate and the stance, RBI governor Shaktikanta Das said, “headline inflation had surged in July driven by tomato and other vegetable prices. It corrected partly in August and is expected to see further easing in September on the back of moderation in these prices. A silver lining amidst all these is declining core inflation (i.e., CPI excluding food and fuel).”

Shanti Ekambaram, Whole-Time Director, Kotak Mahindra Bank Ltd

“The overall inflation outlook, however, is clouded by uncertainties from the fall in kharif sowing for key crops like pulses and oilseeds, low reservoir levels, and volatile global food and energy prices. The MPC observed that the recurring incidence of large and overlapping food price shocks can impart generalisation and persistence to headline inflation,” he said. 

“Economic activity, on the other hand, has remained resilient. Taking into account the evolving inflation-growth dynamics and the cumulative policy repo rate hike of 250 basis points which is still working through the economy, the MPC decided to keep the policy repo rate unchanged at 6.50% in this meeting,” Mr Das said. 

As expected, it was a “ status quo” policy with a renewed emphasis on the inflation target of 4% and resilient macro-economic indicators. Both the economic growth and inflation estimates for the year have been maintained with a commitment to ensure adequate liquidity for supporting growth. The stance remains “withdrawal of accommodation”. Economic trends hint at strong underlying growth trends and healthy credit growth. Even as urban consumption remains robust, the rural markets are showing a promising revival. Overall, a hawkish policy and RBI remains watchful of emerging global volatilities for any policy action to ensure continued price and financial stability. 

Virat Diwanji, Group President and Head – Consumer Bank, Kotak Mahindra Bank”

“Though the decision to hold the policy rates was in line with the broader expectations, the commentary by the Governor has left several clues into the emerging scenarios, including the increasing inflationary pressures in the system, both internal and external, and the increasing inclination to suck out additional liquidity. However, the GDP growth forecast for FY24 at 6.5% is comforting, backed by robust domestic economic activity and strong consumption. A nascent revival in rural growth is most welcome as it will add to the resilience of the overall economy. As RBI continues to monitor price and financial stability, it may also have to keep a watch on Bond yields, equity markets, and the US dollar too.”