RBI plans to sustain repo rates amid declining inflation

The Reserve Bank of India (RBI) is poised to maintain its repo rates for an extended period due to a drop in core inflation and elevated real interest rates, according to the minutes from a recent monetary policy committee (MPC) meeting. The MPC has highlighted potential uncertainties that could impact this decision, including adverse weather events, fluctuations in global food and energy prices, El Nino conditions, and instability in international financial markets.

Retail inflation in India, as measured by the Consumer Price Index, was recorded at 5% for September, marking a decrease from 6.8% in August. The MPC’s goal is to continue implementing disinflationary policies while avoiding excessive restrictions on economic growth.

Ashima Goyal, an external member of the MPC, underscored the need for a sustained and sustainable economic recovery. The RBI anticipates a 6.5% GDP growth rate for FY24 with quarterly increments of 6.5%, 6%, and 5.7%.

Jayanth R Varma suggested that the MPC should declare its intention to maintain high real interest rates long enough to guide projected inflation towards a consistent target of 4%. This move emphasizes the RBI’s commitment to stability and growth amid potential economic uncertainties.

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