RBI keeps repo rate steady at 6.5%
The Reserve Bank of India (RBI) has announced its decision to maintain the repurchase rate (repo rate) at 6.5%. This marks the ninth consecutive time that the central bank has kept the rate unchanged. The announcement was made by RBI Governor Shaktikanta Das following a bi-monthly meeting, where a majority of 4:2 within the Monetary Policy Committee (MPC) agreed on this decision.
RBI's decision aligns with market expectations
Das noted a significant alignment between market expectations and the RBI's policies, stating, "We are seeing good amount of convergence between market expectations and RBI policies, they are well aligned." This decision is in line with predictions from an ET poll of 12 respondents, which unanimously anticipated that the MPC would maintain the current repo rate.
RBI's ongoing battle with inflation
The RBI has been tackling persistent food inflation issues, represented by the "thali" or food platter, a key indicator for analysts monitoring inflation trends. In July, the price of vegetarian thalis went up by 11%, while non-vegetarian thalis saw a 6% hike on a month-over-month basis. Since February 2023, the central bank has gradually increased its policy rate to 6.5% in an attempt to stabilize these pressures. However, high food prices have impeded significant progress in reducing overall inflation.
Inflation disrupts RBI's disinflation path
Despite initial promising results from rate hikes, inflation remains a concern for the RBI. An uptick in June 2024 disrupted the disinflation path, bringing headline inflation closer to 5% rather than the target of 4%. This occurred despite historically low core inflation and deflation in fuel prices. Food prices, which make up a significant portion of the Consumer Price Index (CPI), are primarily responsible for this issue.
