New Delhi, June 07, 2024.

RBI governor Shaktikanta Das-led Monetary Policy Committee kept the repo rate unchanged on expected lines. RBI’s MPC meeting was scheduled from June 5-June 7th. Repo rate, the rate at which the Reserve Bank of India lends to commercial banks, currently stands at 6.5%. RBI initiated the rate hike cycle in 2022 and since then the repo rate has been raised by 250 basis points.

RBI’s Monetary Policy Committee, led by the RBI governor, has six members. The key goal is to keep the Consumer Price Inflation (CPI) closer to the 4% target with a +/- 2% range. The inflation pressures have to be tamed without compromising on the growth. CPI inflation has been within the central bank’s comfort zone for some months now, but with the monsoon season round the corner, the MPC may strike a cautious note. Additionally, India’s GDP growth rate for the fiscal year 2023-24 recently came in at a better than expected level of 8.2%, reducing the chances of a repo rate cut further.

“RBI Governor's focus on ensuring that inflation progressively aligns to its target of 4% on a durable basis - leads to the Reserve Bank keeping the policy rates unchanged as well as maintaining its stance on withdrawal of accommodation! The Governor however alluded to the fact that the Inflation-Growth balance is moving favourably, although food inflation continues to remain elevated. I guess a normal monsoon and lower global commodity price uncertainty may turn out to be the key lever for RBI making a shift in their stance towards a rate cut. There is definitely, for now, a reason to maintain, "Poise, Patience & Perseverance" as the Governor concluded! Said ‘’Mr. Manish Kothari, President & Head – Commercial Banking, Kotak Mahindra Bank Limited’’

MPC maintains a cautious pause and the commentary suggests that the MPC’s policy decisions will be determined by domestic growth-inflation dynamics while considering the impact of monetary policy outcomes in the advanced economies. The RBI Governor explicitly stated in the context of ‘follow the Fed’. Given India’s growth-inflation dynamics, we expect a rate-cut to possibly come through in Q4FY25 with a change in policy stance by December 2024. The progress of the South West monsoon and the July budget will be critical inputs in the August policy, said Achala Jethmalani, Economist, RBL Bank.