The Reserve Bank of India (RBI) has opted to keep its key interest rates unchanged at 5.25%, anticipating a global economic recovery following a ceasefire in the US/Israel-Iran conflict, despite ongoing inflationary pressures and currency fluctuations.
RBI's previous monetary policy was announced on September 29.
Faced with the challenging task of balancing growth and inflation, the Reserve Bank of India will take measures in its quarterly review later this month to perk up the economy and to control inflation, which rose to 0.83 per cent for the third week of September.
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Weighed down by a weak rupee, the Reserve Bank on Tuesday chose to keep all key interest rates unchanged and asked the government to take urgent steps to reign in the high current account deficit.
FPIs have already withdrawn Rs 2.6 trillion from Indian equities in 2026, exceeding the outflows recorded in any previous full calendar year.
The Reserve Bank of India has increased its retail inflation projection for 2026-27 to 5.1 per cent, up from an earlier estimate of 4.6 per cent. This revision is primarily attributed to mounting input costs, driven by the pass-through of higher global energy prices to domestic petrol and diesel rates, which have seen significant increases since May.
'It is not because of the war in West Asia, which began on February 28.' 'Petroleum product prices are already going through the roof. They are bound to have a serious inflationary impact.' 'A country's leadership is tested in trying times. It is here that the current leadership is failing.'
The RBI's bi-monthly policy review on June 3 will be the first after Prime Minister Narendra Modi assumed office on May 26.
The policy will be presented in the backdrop of rising inflation.
Asked if the RBI will cut rates in its upcoming policy review, he said the central bank will definitely factor into account various developments and make an assessment of the macro economic conditions.
'The prohibition regime has been accompanied by concerns regarding the expansion of the illicit liquor trade, increased enforcement challenges and corruption, and the growing use of alternative intoxicants, including illicit drugs.'
The Reserve Bank of India (RBI) Governor Sanjay Malhotra is now confronting the classic growth-inflation tradeoff, a situation exacerbated by the West Asia war, which threatens to end the 'goldilocks period' of low inflation and robust growth.
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The bank chiefs have also cancelled the customary media conference after the bi-annual policies.
'Banking is the only sector that can see double-digit growth in FY27.'
"It is heartening to note that the RBI has chosen growth over monetary tightening and inflationary fears," FICCI president Harsh Pati Singhania said.
The Monetary Policy Committee (MPC) is expected to maintain the status quo on policy rates for the fourth consecutive time in its October 4-6 review meeting. The incremental information available since its last meeting in August suggests that growth and inflation prints for the second quarter (Q2) of financial year 2023-24 (FY24) will exceed the committee's projections. However, the Consumer Price Index (CPI)-based inflation is expected to moderate in the second half (H2) of FY24.
Remarks come at a time when he is under pressure from the govt to cut interest rates.
'Why not aspire for 8 or 9 or even 10 per cent?'
RBI Governor flayed easy monetary policy of central banks in advanced economies saying it is "more cause than medicine".
"Policy sales will be one of the focus areas for the company because looking at the large insurance gap, large number of people being uncovered. The only right way to go is to increase the number of policies," said Amit Jhingran, MD & CEO, SBI Life Insurance.
Reserve Bank of India (RBI) Governor Sanjay Malhotra stated that recent regulatory measures to address foreign exchange market volatility, such as capping banks' net open positions, are temporary and aligned with current market conditions, not signalling any structural shift in policy.
'Ultimately, everything has to be shared. That's why you have that talent. To share it. Unless you share, it won't continue.'
RBI Governor Raghuram Rajan has been pursuing hawkish monetary policy stance to keep inflation under check.
With inflation turning negative, industry has been demanding interest rate cuts to propel demand. However, RBI Governor D Subbarao had said there is no threat of deflation as food and crude oil prices are still firm.
'After that the burdens of an ageing population will be upon us, and the share of working age population will shrink.'
The Indian rupee rebounded 50 paise from its all-time closing low to settle at 96.36 against the US dollar, driven by retreating crude oil prices, signs of easing geopolitical friction, and likely central bank intervention.
The RBI has hiked repo or short-term lending rate up by 0.25 pc to 7.75 pc.
Following are the highlights of the RBI's first monetary policy statement of 2022-23 unveiled by Governor Shaktikanta Das: Policy repo rate unchanged at 4%; marginal standing facility rate & bank rate too remain unchanged at 4.25%. Monetary stance to be accommodative with focus on withdrawal of accommodation to keep inflation within target. GDP growth projection for FY'23 slashed to 7.2% from 7.8%; growth projections based on assumption of crude oil (Indian basket) price at $100 a barrel during FY'23. Inflation forecast hiked to 5.7% for FY'23 from 4.5%.
India's wholesale price index (WPI) inflation surged to 9.68 per cent in May, up from 8.26 per cent in April, primarily due to significant increases in the prices of fuel and power, manufactured goods, and food items.
Highlights of the third quarter review of the monetary
The Indian rupee saw a significant appreciation against the US dollar following President Trump's suspension of military strikes against Iran and the Reserve Bank of India's decision to maintain its key interest rate. Market sentiment was further buoyed by positive comments from the RBI regarding the health of the banking sector.
Bank of Baroda economists project India's GDP to grow 6.5-6.8 per cent in FY27 but warn that the fiscal deficit could overshoot the budgeted 4.3 per cent target, potentially reaching 4.7-4.8 per cent of GDP due to subsidy overruns, excise duty cuts, and oil marketing company losses.
The Union Cabinet has approved a draft bill to introduce stricter punishments for examination paper leaks, following Prime Minister Narendra Modi's announcement. This new legislation builds upon the Public Examinations (Prevention of Unfair Means) Act, 2024, aiming to curb cheating in public examinations conducted by various central agencies amidst recent controversies like the NEET and NET paper leaks.
Former Reserve Bank Governors do not seen any harm in central bank consulting the government before firming up monetary policy initiatives saying such an step would not amount to infringement on its independence.
The International Monetary Fund (IMF) has reduced India's growth forecast for FY27 to 6.4 per cent, citing the potential impact of higher energy prices offsetting the country's economic resilience. Despite this, India remains among the fastest-growing major economies.
Raghuram Rajan, who was Chief Economic Advisor in the Finance Ministry before taking over as RBI Governor on September 4, is scheduled to announce the next mid-quarter policy review on December 18.
The year 2022 saw the Reserve Bank of India (RBI) start acting on the policy repo rate after a gap of two years. The six-member monetary policy committee of the RBI reduced interest rate sharply - by 115 bps - when Covid-19 struck in 2020. In March 2020, days after the nationwide lockdown was announced, MPC in an unscheduled meeting reduced the repo rate by 75 bps, followed by another 40 bps in May. Status quo was maintained for the next two years since the May repo rate hike.
