The Reserve Bank of India (RBI) has maintained its repo rate at 6.50% for the sixth consecutive time. The Sensex and Nifty experienced a sharp decline in late morning trade, driven by bank stocks following the policy decision.
The monetary policy committee led by Shaktikanta Das has kept repo rate at 6.50 percent for six straight time. Last April, after six straight rate hikes totaling 250 basis points since May 2022, the cycle was paused.
“The MPC also decided by a majority of five out of six members to remain focused on the ‘Withdrawal of Accommodation’ to ensure that inflation progressively aligns with the target while supporting growth,” RBI Governor Shaktikanta Das.
While delivering the bi-monthly monetary policy, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) will monitor food inflation to avoid wasting advantages. This is the first bi-monthly policy since last week’s Interim Budget 2024-25.
The slowdown in core inflation is being disrupted by big and repeated food price shocks. Geopolitical events, supply chain disruptions, international financial market volatility, and commodity prices are major inflation concerns. He stated policy repo rate rises are still affecting the economy.
CPI inflation, or retail inflation, reached a four-month high of 5.69% in December. The price hike was mostly due to pulses, spices, fruits, and vegetables. In November 2023, CPI inflation was 5.55 percent.
“If the monsoon is regular next year, CPI inflation for 2024-25 is estimated at 4.5%, with Q1 at 5%, Q2 at 4%, Q3 at 4.6%, and Q4 at 4.7%. Governor: Risks are balanced.
“The MPC will remain resolute in its commitment to aligning inflation to the target,” he said.
Though headline inflation has risen recently, it remains within the 2-6 percent range set by the government for the RBI. Still, it exceeds the central bank’s 4% aim.
The RBI predicts 5.40 percent CPI inflation for FY24 and 5.60 percent for 2024-25.
Sensex, Nifty decline
After the Reserve Bank of India’s monetary policy decision, bank stocks drove Indian equity markets down in late morning trade on Thursday. The 30-share BSE Sensex slid 746.62 points to 71,405.38, and the Nifty fell 220.95 to 21,709.55. The RBI maintained the repo rate at 6.5% for the sixth straight time.
Axis Bank, Nestle, ICICI Bank, ITC, Maruti, Kotak Mahindra Bank, Bajaj Finance, and Asian Paints were Sensex laggards. PowerGrid, however, defied the market by rising over 5% after announcing a 10.5% increase in December quarter consolidated net profit. State Bank of India, HCL Technologies, and TCS benefited from the market collapse. Seoul, Tokyo, and Shanghai rose, but Hong Kong fell.
Conclusion
After six rate hikes since May 2022, the Reserve Bank of India (RBI) has kept repo rate at 6.50% for the sixth time. The Monetary Policy Committee (MPC) will monitor food inflation to preserve benefits. Due to rising food prices, December CPI inflation reached 5.69%, a four-month high. The RBI predicts 5.40% and 5.60% CPI inflation for 2024-25. Headline inflation has dropped within the government-mandated 2-6% guideline for the RBI notwithstanding the recent spike. The RBI predicts 5.40% CPI inflation in 2023-24 and 5.60% in 2024-25. Indian equity markets fell sharply in late morning session due to bank stocks after the RBI’s monetary policy decision.
