On Thursday, the Reserve Bank of India (RBI) decided to keep its key interest rate unchanged at 6.50%. This decision was widely expected and reflects the central bank’s focus on reducing inflation, despite the current global market volatility. The Monetary Policy Committee (MPC), which is comprised of three RBI members and three external members, voted in favour of maintaining the repo rate for the ninth consecutive meeting. The last time the MPC made changes to interest rates was in February 2023 when the policy rate was increased to 6.50%.
The monetary policy stance was described as ‘withdrawal of accommodation’, demonstrating the MPC’s determination to curb inflation and bring it closer to the target of 4%. Governor Shaktikanta Das emphasized the importance of price stability for sustainable growth in India. While the country’s economic growth remains robust, inflation, especially food inflation, continues to be a concern. The central bank is committed to maintaining a course that will bring inflation down.
Market Reaction
Following the RBI’s decision to maintain a hawkish policy stance, Indian shares experienced a decline, with both the NSE Nifty 50 index and the S&P BSE Sensex dropping by 0.4%. The 10-year benchmark bond yield rose slightly, and the Indian rupee remained stable against the US dollar. Investors were anticipating a more dovish approach from the RBI in light of the recent global market instability and expectations of interest rate cuts by major central banks.
Governor Das acknowledged the challenges to global growth in his policy statement but reiterated that domestic considerations would take precedence in determining India’s monetary policy path. Despite the volatility in global markets and rate cuts by other central banks, the RBI remains focused on its mandate of price stability and economic growth. The bank’s growth forecast for fiscal 2025 stands at 7.2%, while the inflation forecast for the current year remains at 4.5%.
The decision by the Reserve Bank of India to maintain interest rates reflects its commitment to achieving price stability and supporting sustainable economic growth. While global factors may influence market sentiments, the central bank’s focus remains on domestic considerations and the long-term objectives of curbing inflation and fostering economic resilience. It is essential for policymakers to continue monitoring economic indicators closely and adapt their strategies accordingly to navigate the challenges presented by both domestic and global economic conditions.