- RBI keeps repo rate unchanged at 5.25 per cent.
- Monetary Policy Committee maintains a neutral stance on rates.
- GDP projection for the current fiscal year raised to 6.7 per cent.
The Reserve Bank of India on Wednesday kept the repo rate unchanged at 5.25 per cent for the third time in a row this financial year. The decision was based on ongoing global geopolitical uncertainty. RBI governor Sanjay Malhotra said that the Monetary Policy Committee has also decided to maintain the stance as ‘neutral’.
Apart from this, the RBI also kept the Standing Deposit Facility (SDF) rate at 5 per cent, while the Marginal Standing Facility (MSF) rate and bank rates remained at 5.5 per cent.
In his address after the three-day bi-monthly meeting, Governor Malhotra stated that headline CPI inflation rose above target, as expected.
He stated that the higher inflation was mostly driven by food and fuel. Core inflation remained moderate. Malhotra further stated that headline inflation is expected to peak in the third quarter of this year and then moderate thereafter.
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Additionally, the governor highlighted that the El Niño could be a major risk as far as inflation is concerned.
Quarterly Projection CPI Inflation: Q1 at 5.3 per cent, Q2 at 4.7 per cent, Q3 at 5.9 per cent, and Q4 at 5.5 per cent.
Meanwhile, the MPC projected core inflation in FY27 to be at 4.3 per cent.
GDP Projection
The latest GDP projection for the current financial year is 6.7 per cent, which is 10 bps higher than the previous projection of 6.6 per cent.
The governor said that the resurgence of conflict since the first week of July has increased volatility in energy prices. He added that preliminary corporate results for the first quarter indicate a strong performance in the manufacturing sector.
"The RBI, as expected, held the policy rates intact and continued with the neutral policy stance. The revision of GDP growth rate downwards to 6.6% and CPI inflation upwards to 5.1% reflects the realistic assessment of the ongoing energy crisis. The revision of inflation upwards indicates that rate hikes are likely later in the year. The extent of rate hikes will depend on the incoming data and evolving outlook," said Dr V K Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.