RBI Keeps Repo Rate Unchanged for 7th Consecutive Time The previous change in the key rate took place in February 2023 when the apex body hiked the repo rate by 25 basis points to 6.50 per cent from 6.25 per cent.

The Reserve Bank of India on Friday kept the repo rate unchanged at 6.50 per cent. This is for the 7th consecutive time that the repo rate has remain unchanged. The previous change took place last February when the apex body hiked the repo rate by 25 basis points to 6.50 per cent from 6.25 per cent. The two-day review meeting of the RBI's Monetary Policy Committee (MPC), the rate-setting panel, concluded today on April 5.

Repo rate refers to the rate at which banks deposit money with RBI. While announcing the same, RBI governor Shaktikanta Das said, "Our policy decisions are primarily guided by domestic factors."

CPI Inflation projected at 4.5 per cent for fiscal 2024-25.

The central bank has projected CPI inflation for FY25 at 4.5%. "Two years ago, around this time, when CPI inflation had peaked at 7.8 per cent in April 2022, the elephant in the room was inflation. The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis," the Governor said.

Growth Projection @7%

RBI retains 7 % real growth rate projection for FY25. According to Governor, growth in first quarter of FY25 is projected at 7.1 per cent, followed by 6.9 per cent in second quarter and 7 per cent each in both third and fourth quarters. "Since the last policy, the growth inflation dynamics has played out favourably. Growth has continued its momentum surpassing all expectations. Headline inflation has eased to 5.1 per cent during both January and February," Das said.

He said that global economy has remained resilient with a stable outlook reflected in various high quality indicators.

Industry Reacts

Reacting to the announcement, Vikas Garg, Head of Fixed Income, Invesco Mutual Fund said the announcement was on expected lines. FY25 inflation maintained at 4.5% even though the projection for 3 out of 4 quarters lowered. 2QFY25 expected to see inflation dropping below 4%, almost after 5 yrs. "Despite elevated crude prices & food inflation, several comments like "Goal in sight" & "Elephant has gone to Forest" gives a dovish tilt on inflation. Fundamental factors remain healthy as reflected in FY25 GDP at 7%, manageable CAD and record high Fx reserve. Overall, it doesn't disrupt the expectations of rate cuts in 2HCY2024, in line with global rate cut cycle. Market focus will be back to fiscal demand-supply dynamics which looks extremely favorable with Govt's rapid fiscal consolidation over next 2 years, FPI inflows and particularly light G-Sec borrowing calendar in 1HFY25."

Parijat Agrawal, Head Fixed Income, Union Mutual Fund expect rate cuts in 3rd quarter of FY 25, possibly after US FOMC starts rate cut cycle. "RBI is expected to keep liquidity neutral so that further transmission of higher rates can continue. There is possibility of modification of LCR framework going forward which may augur well for bonds."

Deepak Ramaraju, Senior Fund Manager, Shriram AMC said while the RBI has decided to keep the interest rates unchanged, it's important to note that the timing of the rate cut is linked to the inflation rate reaching 4% and this creates some uncertainty about when the rate cut will happen. "Currently, we are in a deflationary zone, but there are upward pressures from food prices (due to the El Nino factor) and crude oil shocks that can add to the uncertainty. The market is concerned about a potential delay in the rate cut, which could cause it to remain range-bound in the near term."

Anitha Rangan, Economist, Equirus shared that RBI has a view that domestic growth momentum led by rural recovery, private capex and government investment will remain strong into the year, and inflation is also expected to remain moderated. However the key headline risk is coming from rising geo-politics which is also getting evidenced in rising crude prices. "The impact on inflation from the above two factors warrant a watch and staying cautious on the policy. On liquidity, RBI is likely to continue with the current tools of VRR and VRRR to manage deficit and surplus in the system. Ahead of the bond inclusion, RBI is not doing anything different to change the dynamics of policy actions or liquidity management. In summary, RBI is not lowering the guard while inflation aligns to the target. Status quo for now!"

Achala Jethmalani, Economist, RBL Bank feels that with growth-inflation projections for the fiscal year unchanged, with minor quarterly revisions, is a good signal as it indicates that the economic situation is panning out as envisaged. "The MPC remains cognizant of food related upside risks to inflation trajectory. We see a cautious pause be the case till September 2024."