The Monetary Policy Committee (MPC) of the Reserve Bank of India on Thursday decided unanimously to keep the policy repo rate unchanged at 6.5% even as it raised the projection for retail inflation in the cur- rent fiscal year by 30 basis points to 5.4%.

The MPC also decided by a majority of 5 out of 6 members to stay focused on withdrawal of accom- modation to ensure that in- flation progressively aligns with the target, while sup- porting growth.

“Headline inflation, af- ter reaching a low of 4.3%in May 2023, rose in June and is expected to surge during July-August led by vegetable prices,” ob- served RBI Governor Shak- tikanta Das, explaining the MPC’s rationale..

“While the vegetable price shock may reversequickly, possible El NiƱo weather conditions along with global food prices need to be watched closely against the backdrop of a skewed south-west mon- soon so far. These develop- ments warrant a height- ened vigil on the evolvinginflation trajectory.

“The cumulative rate hike of 250 basis points un- dertaken by the MPC is working its way into the economy. Nonetheless, domestic economic activi- ty is holding up well and is likely to retain its momen- tum, despite weak external demand,” Mr. Das added.

The MPC retained its projection for real GDP growth in 2023-24 at 6.5%.

The CPI inflation projec- tion for 2023-24, assuming a normal monsoon, was re- vised upwards to 5.4% from the 5.1% forecast in June, with Q2 at 6.2%, Q3 at 5.7%, and Q4

To address the problem of excess liquidity with banks, the RBI decidedthat with effect from the fortnight beginning August 12, scheduled banks would maintain an incremental cash reserve ratio of 10% on the increase in their net demand and time liabilities (NDTL) between May 19, 2023 and July 28, 2023.

“This measure is intend- ed to absorb the surplus li- quidity generated by va- rious factors including the return of 2000 notes to the banking system,” Mr. Das said. “This is purely a temporary measure for managing the liquidity overhang. Even after this temporary impounding, there will be adequate li- quidity in the system to meet the credit needs of the economy,” he added.

Leave a Reply

Your email address will not be published. Required fields are marked *