The Reserve Bank of India’s (RBI) rate-setting panel kept policy rates unchanged for the eighth consecutive time at 6.5% on Friday, reiterating its commitment to achieving the 4% medium-term inflation target, even as inflation-growth balance becomes favourable.

Four out of six members of the central bank’s Monetary Policy Committee voted to keep the policy repurchase rate unchanged at 6.5%, and stance unchanged at withdrawal of accommodation. Until April, only one of six committee members had voted against the status quo in rates and policy stance.

RBI had last raised the repo rate to 6.5% in February 2023, and has left it unchanged since then.

The MPC began its three-day bi-monthly meeting on 5 June, a day after the results for the 2024 Lok Election were announced.

Growth and inflation

The committee revised its earlier projection of growth outlook for fiscal year 2025 (FY25) to 7.2% from 7% earlier. 

The Indian economy expanded at a blistering 8.2% in FY24, ably supported by January-March quarter growth of 7.8%, according to latest official data.

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The central bank maintained its retail inflation forecast, expecting it to average 4.5% for the fiscal year ending March 2025, with quarterly estimates of 4.9% in Q1, 3.8% in Q2, 4.6% in Q3, and 4.5% in Q4. Das stated that the risks are evenly balanced.

Annual retail inflation eased slightly to 4.83% in April from 4.85% in March but was still well above the MPC’s target.

Governor Das emphasised that MPC’s actions will not be guided by the US Federal Reserve’s policy actions and will instead be determined by the domestic economic outlook

“While we do keep a watch on whether clouds are building up or clearing out, we play according to local weather and pitch conditions. Our actions are primarily dependent on domestic growth and inflation outlook,” he said.

Das reiterated that the committee will be nimble in managing banking system liquidity.

Market expectations

The RBI Governor headed six-member MPC was expected to keep the benchmark repo rate unchanged at 6.5% and continue with its stance of ‘withdrawal of accommodation’.

The Indian stock market benchmark indices, Sensex and Nifty 50, opened flat on Friday, ahead of the announcement of RBI monetary policy today. Analysts had expected the RBI policy would be a ‘non-event’ for markets as the central bank is likely to keep repo rate unchanged.