RBI Holds Steady: Maintains Repo Rate at 6.5% to Tackle Inflation and Nurture Economic Growth

The Reserve Bank of India (RBI) maintained its benchmark repo rate at 6.5% on Friday, signaling a commitment to anchor inflation and support economic growth. The central bank reiterated its policy stance of "withdrawal of accommodation" to align inflation with its target of 6% (+/-2), emphasizing a focus on curbing money supply to manage inflationary pressures.

RBI Governor Shaktikanta Das, after a two-day meeting of the monetary policy committee, stated that the successive policy rate hikes, referring to interest rate increases, "seem to be working." The active "disinflationary" approach will persist in the monetary policy.

Key variables influencing the course of inflation include the risks associated with high food prices. Das highlighted the fragility of the global economy, citing elevated debt levels, geopolitical tensions, and extreme weather conditions. Despite recent price moderation, he noted that "long-awaited normality still eludes the global economy."

Das has consistently cautioned about the risks of food prices, citing India's vulnerability to shocks from extreme weather events and global factors. This marks the second warning in a month from the RBI governor regarding the risks posed by food inflation.

The central bank had previously raised the repo rate by 250 basis points to 6.5% between May 2022 and February 2023. Following a pause in the April review, the repo rate, the rate at which commercial banks borrow from the RBI, remains a crucial tool for regulating credit and investments. The decision to maintain the rate aims to balance borrowing costs for businesses, influencing money supply and aiding in the control of inflation—a primary objective of rate adjustments.