RBI holds rates again to keep inflation down

MUMBAI: The Reserve Bank of India (RBI) on Friday chose to stay the course on inflation control, refusing to make any knee-jerk reaction to the growth slump reported in the second quarter with a repo rate cut.

RBI’s monetary policy committee (MPC) led by governor Shaktikanta Das decided to maintain the repo rate at 6.5% for the 11th time on the trot. The last time it changed the repo rate - the interest rate at which RBI lends money to commercial banks - was in February 2023, when it raised it by 25 basis points.

With Friday’s decision to hold rates, the central bank has signalled that a growth slip in just one quarter does not warrant a course correction from its Parliament-mandated inflation control objectives.

RBI has, however, cut the FY25 GDP projection from 7.2% to 6.6% and also raised the full year inflation estimate to 4.8% from 4.5% earlier.

While it maintained the key policy rate, the MPC offered cheaper funds to the economy to support growth, by slashing the cash reserve ratio (CRR) by 50 bps to 4%. The move will release Rs 1.16 lakh crore of lendable money to banks. CRR is the percentage of banks’ deposits that must be parked with RBI.

Announcing the policy decision, Das said all data since October indicate that the economy has bottomed out and has since been resilient.

“We don’t want to take any decision which we may be forced to retract or regret. We need more evidence/data to change our course of action,” he said at the customary post-policy press conference, which would be his last presser if he is not given another extension. His current term ends on December 10.

Michael Patra, the senior most deputy governor who is in-charge of the monetary policy department, said: “Just because of one set of data went off the mark, it’s too early to reverse or change the course,” indicating that the second-quarter GDP numbers are not the end of the road for economic growth.