RBI’s MPC keeps repo rate unchanged for eighth time in a row

The Reserve Bank of India’s (RBI’s) rate-setting monetary policy committee (MPC) on Friday kept the policy rate unchanged at 6.5%, while maintaining its hawkish “withdrawal of accommodation” policy stance.

The central bank also raised its growth projection for the current fiscal year to 7.2% from 7% earlier, while maintaining its retail inflation forecast of 4.5%.

The RBI’s decision to maintain status quo on rates for the eighth time in a row comes a couple of days after the Bharatiya Janata Party (BJP) fell short of the majority mark in Parliament. The newly elected members of the BJP-led National Democratic Alliance were on Friday meeting in Parliament, where they will formally announce Narendra Modi as their candidate for prime minister.

Stocks rose following the RBI’s decision on Friday, with benchmark indices Sensex and Nifty set for a weekly gain.

“While the MPC took note of the disinflation achieved so far without hurting growth, it remains vigilant to any upside risks to inflation, particularly from food inflation, which could possibly derail the path of disinflation,” RBI governor Shaktikanta Das said. “Hence, monetary policy must continue to remain disinflationary and be resolute in its commitment to aligning inflation to the target of 4% on a durable basis”

On the likely trajectory of inflation, Das said that the July-September quarter may see some correction in headline inflation, “but this is likely to be one-off on account of favorable base effects and may reverse in the third quarter.”

Giving a cricketing analogy on why RBI doesn’t “follow the Fed” in matters of monetary policy,  Das said: “I would like to unambiguously state that while we do keep a watch on whether clouds are building up or clearing out in the distant horizon, we play the game according to the local weather and pitch conditions.”

“While we do consider the impact of monetary policy in advanced economies on Indian markets, our actions are primarily determined by domestic growth-inflation conditions and the outlook,” Das added

Highlighting the growing instances of digital payment frauds and underscoring the need for a system-wide approach to prevent and mitigate such incidents, Das proposed to set up an “intelligence platform” for network level intelligence and real-time data sharing.

“It is proposed to establish a Digital Payments Intelligence Platform for network level intelligence and real-time data sharing across the digital payments’ ecosystem. To take this initiative forward, the Reserve Bank has constituted a committee to examine various aspects of setting up the Platform,” Das said.

On the RBI building up gold reserves, Das said that the quantum of gold held abroad had been static for a long time, but in recent years, the central bank has been buying gold.

“The quantum of gold held outside the country was static for a long time. But in recent years, data show that the RBI is buying gold as part of reserves, and the quantum has been going up. We have some domestic capacity, so part of it should be stored within the country. Nothing more should be read into it,” Das said.

The RBI releases half-yearly data on its gold reserves, which specifies how much of the precious metal is held in India and outside, Das said.