RBI Holds Key Rate Steady at 6.5% Amid Inflation Focus

Today, Reserve Bank of India Governor Shaktikanta Das announced the steadfast maintenance of the key lending rate at 6.5%. This decision by the monetary policy committee underscores a relentless focus on controlling inflation, especially with anticipated food price hikes soon juxtaposed against a better-than-expected economic growth trajectory.

The decision marks the fifth consecutive time the RBI has maintained the repo rate, the crucial interest rate at which the RBI lends to other banks. This assurance implies that loan interest rates are expected to remain stable, offering continuity and predictability in the lending landscape.

UPI Payment Limit Upgrade and Global Economic Landscape

Mr Das also disclosed an enhancement in UPI payment limits for hospitals and educational institutions, elevating the cap to ₹5 lakh from ₹1 lakh per transaction—a move aimed at facilitating smoother financial operations in these sectors.

Governor Das highlighted encouraging global economic indicators, signalling signs of recovery. However, he cautioned about persistent challenges, noting that while headline inflation had receded from previous highs, it remained elevated in various countries, with core inflation stubbornly staying above desired levels.

Emphasizing India's economic robustness, Mr Das lauded the second-quarter GDP performance, surpassing all prognostications. He further asserted that fiscal consolidation remains on track, presenting a promising outlook for the nation's economic stability.

The RBI reiterated its policy stance of "withdrawal of accommodation," aimed at aligning inflation progressively with the committee's target while concurrently nurturing economic growth, reinforcing a delicate balancing act between inflation containment and economic support.

Projections and Past Moves

Mr Das projected retail inflation for the Financial Year 2024 at 5.4% while estimating real GDP growth for the 2023-24 fiscal year at 7%, with growth rates of 6.5% and 6% anticipated for the December and March quarters, respectively.

Reflecting on previous policy manoeuvres, the RBI has raised the repo rate by 250 basis points since May 2022 to curb inflation. Despite inflation dropping to a four-month low of 4.87% in October, it is expected to linger above the RBI's 4% medium-term target for a while.

Upbeat Economic Performance

India's economy expanded at a robust 7.6% in the July-September quarter, surpassing both median polled forecasts and the RBI's estimate of 6.5%. Driven by substantial government expenditure and manufacturing prowess, this outperformance instils confidence in the nation's ability to exceed its yearly growth projections.

As the RBI stands firm on its monetary policy decisions, the focus remains on navigating the delicate balance between inflation containment and fostering sustainable economic expansion, bolstering India's economic trajectory in the face of evolving global dynamics.