The Reserve Bank of India’s (RBI) six-member Monetary Policy Committee (MPC) decided to keep the key repo rate unchanged at 6.5%, despite rising inflation.
RBI Governor Shaktikanta Das had kept the rates unchanged in the June policy after a unanimous vote as well, thus maintaining the repo rate for the third consecutive time.
The repo rates were left unchanged by the six-member MPC h in the April meeting too, before which there was a cumulative hike of 250 basis points from May 2022 in a bid to contain inflation.
‘After detailed deliberations on all relevant aspects, the MPC decided unanimously to keep the policy repo rate unchanged at 6.50 per cent,’ Governor Das said.
The RBI’s decision is in line with the inflationary trends that have been visible so far as well as those expected going forward.
While global growth is expected to be muted this financial year it is encouraging that overall economic activity in the Indian context has been encouraging.
The RBIs commitment to firmly focus on aligning inflation to the target of 4% signals a moderated interest rate scenario going forward.
The RBI Monetary Policy Committee (MPC) has left the Cash Reserve Ratio unchanged at 4.5%.
It has however put in place an additional Cash Reserve Ratio (CRR) of 10% on banks starting August 12, 2023.
Indian banks have been asked to maintain a 10% incremental cash reserve ratio (ICRR) with effect from August 12, due to an increase in their Net Demand and Time Liabilities (NDTL) between May 19 and July 28, 2023, stated Governor Shaktikanta Das.
The decision to increase incremental CRR is only intended to absorb the surplus liquidity generated by various factors (including a greater-than-anticipated quantum of INR 2,000 notes in the banking system) and is a temporary measure for managing the liquidity overhang and is not likely to impact liquidity in the system, Governor Das added.
The recently declared inflation print for June was at 4.49 per cent, up from 4.25 per cent in May.
‘The month of July has witnessed accentuation of food inflation, primarily on account of vegetables. The spike in tomato prices and further increase in prices of cereals and pulses have contributed to this. Consequently, a substantial increase in headline inflation would occur in the near-term,’ said Governor Das.
Stay updated with all the insights.
Navigate news, 1 email day.
Subscribe to Qrius
