The Business Bytes
Mumbai, August 8, 2024 (TBB Bureau): The Reserve Bank of India (RBI) has decided to maintain its benchmark interest rate at 6.50% for the ninth consecutive policy meeting, underscoring its continued focus on curbing persistent food inflation and ensuring economic stability.
In its latest announcement, the Monetary Policy Committee (MPC) — comprising three RBI officials and three external members — opted to keep the repo rate unchanged, emphasizing its commitment to controlling inflation. The MPC’s decision reflects a strategic stance of “withdrawal of accommodation” to steer inflation towards the targeted 4% mark.
The decision saw support from four out of the six MPC members. The current term of the committee is set to conclude in October. The MPC’s stance remains critical given that inflation surged to 5.08% in June, largely driven by rising food prices.
RBI Governor Shaktikanta Das addressed the issue, noting that food inflation continues to be “stubbornly” high. He stressed that maintaining price stability is essential for sustained economic growth. Das stated, “Monetary policy must persist in its disinflationary approach. Although the MPC could have potentially overlooked high food inflation if it were temporary, the ongoing nature of this inflation requires us to remain vigilant to avoid secondary effects and to preserve the credibility of our monetary policy.”
The RBI has not adjusted interest rates since February 2023 when it was raised to the current level. This steady stance comes amidst diverse central bank actions globally. While the Bank of England recently lowered its rates, the Bank of Japan increased them to their highest levels since 2008. Additionally, concerns over a potential U.S. recession, highlighted by weak employment data, are intensifying pressure on the Federal Reserve to consider rate cuts.
The RBI has retained its GDP growth forecast for India at 7.2% and its Consumer Price Index (CPI) inflation target at 4.5% for the fiscal year 2024-25. Governor Das also flagged a shift towards alternative investment avenues which could impact bank deposit growth, and expressed concerns over the rise in retail and top-up housing loans, which may require careful monitoring to prevent misuse and ensure productive deployment.
Additionally, the RBI announced several measures including increasing the limit for tax payments via UPI from ₹1 lakh to ₹5 lakh per transaction, expediting cheque clearances, and introducing a delegated payments facility in UPI.
“Under the current monetary policy framework, we observe a balanced evolution of inflation and growth, with macroeconomic conditions remaining stable. While progress towards price stability has been made, persistent supply-side shocks, especially in food prices, necessitate continued vigilance to ensure inflation trends towards the target and supports sustained high growth,” Das concluded.
