RBI Monetary Policy Highlights: MPC Keeps Repo Rate Unchanged, Stays Vigilant On Inflation

India's Monetary Policy Committee decided to keep the benchmark repo rate unchanged for the third straight meet, but with preparedness to undertake policy responses, should the situation so warrant.

Following the review, the MPC decided:

• To keep the repo rate unchanged at 6.5% unanimously.

• The standing deposit facility rate, pegged 25 basis points below the repo rate, is at 6.25%.

• The marginal standing facility rate, which is 25 basis points above the repo rate, is at 6.75%.

The committee had raised the benchmark repo rate by 250 basis points in the last cycle before opting for a pause in April, June and August.

The stance on withdrawal of accommodation remained unchanged with a 5:1 majority. Jayanth R Varma expressed reservations on this part of the resolution.

The MPC will maintain a close vigil on the evolving inflation scenario and remain resolute in its commitment to aligning inflation to the target and anchoring inflation expectations, it stated.

Headline inflation remains above the target. Its inflation trajectory is likely to be shaped by food price dynamics.

• Going forward, the spike in vegetable prices, led by tomatoes, would exert sizeable upside pressures on the near-term headline inflation trajectory. This jump is, however, likely to correct with fresh market arrivals.

• There has been significant improvement in the progress of the monsoon and kharif sowing in July; however, the impact of the uneven rainfall distribution warrants careful monitoring.

• Manufacturing, services and infrastructure firms polled in the Reserve Bank’s enterprise surveys expect input costs to ease but output prices to harden.

The headline inflation is likely to witness a spike in the near months on account of supply disruptions due to adverse weather conditions, the resolution stated. It is important to be vigilant about these shocks with a readiness to act appropriately so as to ensure that their effects on the general level of prices do not persist, it reaffirmed.

Economic activity remains resilient, with positive momentum so far.

• Looking ahead, the recovery in kharif sowing and rural incomes, the buoyancy in services and consumer optimism should support household consumption.

• Healthy balance sheets of banks and corporates, supply chain normalisation, business optimism and robust government capital expenditure are favourable for a renewal of the capex cycle which is showing signs of getting broad-based.

• Headwinds from weak global demand, volatility in global financial markets, geopolitical tensions and geoeconomic fragmentation, however, pose risks to the outlook.