RBI holds repo rate as inflation pressure persists

Subject: Economy

Section: Monetary Policy

In News: Monetary Policy Committee (MPC)’s decides to maintain the repo rate at 6.50 per cent for the third time in a row.

Key Points:

Factors such as spike in vegetable prices, uncertainties on domestic food price outlook due to sudden weather events and firm crude oil prices prompted the six-member Monetary Policy Committee (MPC) to unanimously vote to keep the policy repo rate.
MPC’s decision to maintain the repo rate at 6.50 per cent for the third time, while it has revised its FY24 inflation forecast upwards.
RBI revised its forecast for consumer price index-based (retail) inflation for FY24 upwards from 5.1 percent to 5.4 per cent due to persisting inflationary risks. It maintained real GDP growth projection for FY24 at 6.5 percent.
Headline inflation, after reaching a low of 4.3 per cent in May 2023, rose in June and is expected to surge during July-August led by vegetable prices.
Considering the short-term nature of the price shock from vegetables, monetary policy will look for high inflation data for some time, before any rate cut may happen. RBI also noted rate cut not likely before 2024.