New Delhi, June 07, 2024.

The Reserve Bank of India’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.5% in its first meeting since Lok Sabha Elections 2024. RBI decided to hold the key policy rate for the eighth consecutive time in its June 2024 meeting. The MPC had last changed the benchmark interest rate in February 2023. Real GDP growth is expected at 7.2% for FY25.

Indranil Pan, Chief Economist at YES BANK  Said “Even as one more member has now turned in favour of a stance change and a rate change, we do not see the RBI in any hurry to move towards a pivot. The governor points out to the fact that there continues to be risks from food inflation and the summer price changes are visible on the backdrop of a shallow winter price drop. In this context, the RBI would watch out for the pulses and vegetables prices that have seen a recent uptick in prices. There are come cautionary statements for the core inflation too. It was pointed out that the early results from its enterprise surveys do point towards firms expecting the selling prices to stay firm. Importantly, for the RBI, the 4% inflation target to be reached on a durable basis remains sacrosanct. The comment that comes to the fore is his mention of the fact that the currently expected 3.8% average inflation for Q2 FY25 is likely to be a one-off and inflation is expected to move higher beyond this point. Overall, this policy continues to echo similar sentiments as in the previous policy – that the RBI is unlikely to make any haste in its decision to pivot and will remain driven by the domestic growth-inflation mix in determining the timing of its policy move. In our opinion, with growth expected to remain firm, the last phase of dis-inflation towards the 4% target remains arduous and hence the RBI would be willing to bide its time. We see a shallow rate cut this fiscal, probably starting in December 2024.”

"The RBI’s decision to maintain the repo rate steady for the eighth consecutive time reaffirms its focus on achieving a 4% inflation target sustainably. The decision reflects a prudent stance in balancing growth concerns and inflationary pressures. With India's GDP growth momentum remaining strong, the RBI is ensuring a balanced approach to fostering economic growth and financial stability. Said "Sujata Guhathakurta, President, Debt Capital Markets and Infrastructure Financing Business, Kotak Mahindra Bank.

Shreya Sodhani, Regional Economist, Barclays Said “The Reserve Bank of India’s monetary policy committee (MPC) voted 4-2 to hold the repo rate at 6.50% and to maintain the policy stance as “withdrawal of accommodation.”

External MPC member, Dr. Ashima Goyal joined Professor Jayanth Varma in voting for a 25bp cut; both also voted to changing the stance to neutral. While this was not our baseline, we had noted the risk that Dr. Goyal could change her vote with the February and April meeting minutes showing that she was much closer to the dovish end of the spectrum.

Despite two dissenting votes, we think the MPC statement was relatively balanced, as also reflected in Governor Das’s rhetoric. While noting that inflation continues to moderate due to favourable core and fuel prices, the governor noted the need to remain “vigilant” on food prices and the “work remaining to be done”. Governor Das also highlighted the rising international prices of industrial metals, which could exacerbate the domestic input cost conditions.

On the other hand, the central bank’s confidence on growth seems to have increased, which in Governor Das’ words, provides “greater elbow room to pursue price stability “. This implies that within the growth/inflation matrix, the RBI’s focus remains on navigating the last mile of disinflation. The governor did highlight the degree of disinflation that has already been achieved without hurting growth, but emphasised the commitment to align inflation with the 4% target, as sustained price stability helps to achieve stronger growth for a prolonged