Shaktikanta Das, Reserve Bank of India governor, announced that the monetary policy committee had unanimously decided to maintain the repo rate at 6.5% for the third consecutive meeting, but added that rates may increase if inflation worsens. Das also raised the inflation forecast for the current financial year to 5.4% from 5.1%.
While uncertainties linked to domestic food prices have prompted the RBI to raise its inflation forecast, it has retained the growth forecast for the current fiscal at 6.5%. “The policy repo rate remains unchanged with preparedness to act if the situation warrants,” said Das.
To handle the extra liquidity brought on by the repatriation of the Rs 2,000 notes, Das also announced a rise in the cash reserve ratio of 10% on deposits between May 19 and July 28.
Worried over the spike in vegetable prices, particularly tomatoes, the RBI said that bringing inflation within the tolerance band (2-6%) is not enough, and there is a need to align inflation to the 4% target. “Inflation projection for Q2 of FY24 has been revised up substantially, primarily due to the price shock from vegetables. Given the likely short-term nature of these shocks, monetary policy can look through high inflation prints caused by such shocks for some time,” Das said.