The Reserve Bank of India (RBI) has maintained its benchmark interest rate and policy stance for the ninth consecutive meeting, citing persistent high food inflation and the need to remain vigilant against spillover effects.
The Monetary Policy Committee (MPC), comprising three RBI members and three external members, voted to keep the repo rate unchanged at 6.50 per cent. Four out of the six members supported the decision. The MPC, whose four-year term ends in October, also decided to retain the "withdrawal of accommodation" stance to help focus on bringing inflation down to its 4 per cent target.
Inflation rose to 5.08 per cent in June, driven primarily by food prices. RBI Governor Shaktikanta Das emphasised that without price stability, high growth is unsustainable, and the monetary policy must remain disinflationary.
"Monetary policy must continue to be disinflationary," Das said. "In an environment of persisting high food inflation, the MPC cannot afford to look through it. It must remain vigilant to prevent spillovers or second-round effects and preserve monetary policy credibility."
The last adjustment to the interest rate was in February 2023, when it was increased to 6.5 per cent. The RBI's decision comes amid varied actions by central banks in advanced economies. The Bank of England recently reduced interest rates, while the Bank of Japan increased rates to their highest levels since 2008. Concerns about a U.S. recession have also pressured the Federal Reserve to consider rate cuts.
The RBI retained its GDP growth forecast for India at 7.2 per cent and the headline CPI inflation at 4.5 per cent for the fiscal year 2024-25.
Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, noted that with growth remaining robust, the MPC has room to maintain its policy stance to confirm a disinflationary trend. "We continue to expect scope for change in stance in the October policy, with rate cuts beginning in December," she said.
Radhika Rao, Executive Director and Senior Economist at DBS Bank, added that the RBI's policy guidance prioritises domestic considerations despite expectations of rate cuts in the U.S. "The RBI MPC retained its cautious tone on inflation, given the anticipated pass-through from perishables price pressures and tariff adjustments," Rao said.
Governor Das also highlighted the growing attractiveness of alternative investment avenues for retail customers, which has led to bank deposits lagging behind loan growth. Although he did not specify the alternatives, he may have been referring to the stock market.
"Banks are increasingly relying on short-term non-retail deposits and other liability instruments to meet incremental credit demand, which may expose the banking system to structural liquidity issues," Das warned.
He also raised concerns about excess leverage through retail loans and the rise in top-up housing loans, urging banks to focus on mobilising household financial savings through innovative products and services.
Among the measures announced were raising the limit for tax payments through UPI from Rs 1 lakh to Rs 5 lakh per transaction, clearing cheques within a few hours, and introducing a facility for delegated payments in UPI.
"Under the current monetary policy setting, inflation and growth are evolving in a balanced manner, and overall macroeconomic conditions are stable," Das said. "We need to remain vigilant to ensure that inflation moves sustainably towards the target while supporting growth."
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