The Reserve Bank of India (RBI) on Wednesday decided to keep the repo rate steady at 6.5%, with Governor Shaktikanta Das emphasizing the need for caution on inflation, despite recent signs of moderation.
While maintaining the retail inflation estimate for FY25 at 4.5%, Das warned, "We have to be very careful about opening the gate, as the inflation horse may bolt again."
The governor's comments reflect a delicate balance between managing inflation risks and supporting economic growth. Although headline inflation has shown signs of easing, Das pointed out the challenges in achieving the "last mile of disinflation" and the significant risks that remain. He noted that the evolving domestic price situation suggests some moderation ahead, but stressed the need to closely monitor conditions for further disinflationary impulses.
The RBI's Monetary Policy Committee (MPC) also shifted its policy stance from "withdrawal of accommodation" to "neutral," indicating a more balanced approach toward growth. The decision comes in the context of India’s steady economic growth, with real GDP projected to grow by 7.2% in FY25, supported by Q2 growth at 7%, and 7.4% in Q3 and Q4.
Deepak Shenoy, founder of Capitalmind, questioned the decision to hold rates. In a post on X, he noted, “Rates unchanged, says RBI. Strange—they quote weather, food is okay, fuel is fab, etc. It’s ludicrous to have less than 4% inflation with a 6.5% repo for this long.” Shenoy also raised concerns about the RBI’s role in potentially fueling inflation through substantial USD purchases, signaling that the broader impact of these actions is yet to be fully understood.
The RBI's stance reflects a cautious approach, aiming to strike a balance between inflation control and sustaining growth. As Das put it, while the "inflation horse" may currently be in the stable, the central bank remains wary of it breaking free, underscoring the importance of vigilance in the months ahead.