On Friday, the Monetary Policy Committee (MPC) left the policy repo rate unchanged at 6.50 per cent as it awaits retail inflation to move to the 4 per cent target on a durable basis. This also comes against the backdrop of strong growth momentum.
The six-member rate-setting committee also persisted with its “withdrawal of accommodation” stance to ensure that inflation progressively aligns with the target while supporting growth.
MPC members decided by a 4 to 2 majority to keep the policy repo rate unchanged. They also MPC also decided by a majority of 4 out of 6 members to remain focused on withdrawal of accommodation.
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The six-member MPC has been on pause for over 15 months now. The last rate action was on February 8, 2023, when the repo rate was increased from 6.25 per cent to 6.50 per cent.
The committee met from June 5 to June 7. This is its second meeting of FY25.
FY24 ended on a high note for the economy, with GDP growing at 8.2 per cent against 7 per cent in FY23.
Though retail (consumer price index-based) inflation softened to a 11-month low of 4.83 per cent in April from 4.85 per cent in March, it remains above the MPC’s 4 per cent target.
Considering the growth-inflation dynamics, the committee preferred to stand pat on the repo rate. The repo rate is the interest rate at which banks draw funds from RBI to overcome short-term liquidity mismatches.