RBI keeps repo rate and FY24 GDP growth forecast unchanged at 6.5%

The Reserve Bank of India on Thursday opted for a pause second time in a row, maintaining key benchmark policy rate at 6.5 per cent as inflation moderates.

The rate increase cycle was paused in April after six consecutive rate hikes aggregating to 250 basis points since May 2022.

Announcing the bi-monthly monetary policy, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) unanimously decided to keep the rate unchanged at 6.5 per cent.

The Reserve Bank on Thursday retained the GDP growth projection for current fiscal year at 6.5 per cent, on the back of supportive domestic demand conditions.

In April, the central bank had marginally revised upwards the 2023-24 GDP growth projection to 6.5 per cent, from its earlier forecast of 6.4 per cent.

Domestic demand condition remains supportive of growth and also the demand in rural areas is on the revival path, RBI Governor Shaktikanta Das said while announcing the 2nd bi-monthly policy for 2023-24.

India's economy grew 6.1 per cent in the fourth quarter of 2022-23, pushing up the annual growth rate to 7.2 per cent, as against 7 per cent anticipated earlier.

Das said the higher rabi crop production in 2022-23, the expected normal monsoon, and the sustained buoyancy in services should support private consumption and the overall economic activity in the current year.

The government's thrust on capital expenditure, moderation in commodity prices and robust credit growth are expected to nurture investment activity, said the Monetary Policy Statement, 2023-24.

Weak external demand, geo-economic fragmentation, and protracted geopolitical tensions, however, pose risks to the outlook, it added.

"Taking all these factors into consideration, real GDP growth for 2023-24 is projected at 6.5 per cent with Q1 at 8 per cent, Q2 at 6.5 per cent, Q3 at 6 per cent, and Q4 at 5.7 per cent, with risks evenly balanced," the governor said.

Das said, in the second quarter of 2023, the global economy is sustaining the momentum gained in the preceding quarter in spite of still elevated though moderating inflation, tighter financial conditions, banking sector stress, and lingering geopolitical conflicts.

While keeping the interest rate intact, Das said headline inflation still remains above RBI's target of 4 per cent and expected to remain so during the rest of the year.

Inflation projection has been slashed marginally to 5.1 per cent from earlier estimate of 5.2 per cent for current financial year.

He said retail inflation has been below the upper band of 6 per cent for the last two years.

The MPC meeting took place against the backdrop of consumer price-based (CPI) inflation declining to a 18-month low of 4.7 per cent in April.

The Reserve Bank governor recently indicated that the May print would be lower than the April numbers.

The CPI for May is scheduled to be announced on June 12.

The government has mandated RBI to ensure CPI inflation at 4 per cent with a margin of 2 per cent on either side.