RBI Keeps Key Lending Rate Unchanged at 6.5%

On Friday, the Reserve Bank of India (RBI) maintained its benchmark lending rate at 6.5% for the seventh consecutive time. RBI Governor Shaktikanta Das announced that the decision was reached with a majority vote of 5:1 during the bi-monthly meeting of the Monetary Policy Committee (MPC). This decision implies that the interest rates on loans are expected to remain stable, given the unchanged repo rate.

The RBI had paused the rate increase cycle last April after six straight rate hikes of 250 basis points since May 2022.

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RBI Governor Highlights Inflation Trends and Policy Focus

Inflation is moving closer to targets, said the RBI Governor, projecting retail inflation for the current year at 4.5%. The RBI has been mandated by the government to maintain retail inflation at 4% with a 2% margin on either side.

Core inflation has declined steadily over the last nine months while fuel component remained in deflation for six straight months, Mr Das said. Robust growth prospects provide space for the policy to remain focussed on inflation, he added.

However, uncertainties in food prices continue to pose challenges, he said, adding that the MPC remains vigilant to the upside risk to inflation that may derail the path of disinflation. “Food inflation continues to exhibit considerable volatility which is impeding the ongoing disinflation process,” he said.

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Governor Discusses Economic Growth and Stability of Indian Rupee

The RBI Governor said the country is projected to grow 7% this financial year, with 7.1% growth expected in the April-June quarter and 6.9% in the July-September quarter. “The risks are evenly balanced.”

The Indian rupee has remained largely rangebound and is the most stable among the major currencies, said Mr Das. “Compared to the last three years, the rupee exhibited the lowest volatility in FY24. The relative stability of the rupee reflects sound macroeconomic fundamentals and external position,” he added.

India continues to remain the largest receiver of remittances with the country’s foreign portfolio investment seeing a significant turnaround, the RBI Governor said, adding that its forex reserves are now at a record high.

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