RBI MPC keeps repo rate unchanged for 5th straight time

The Reserve Bank of India's (RBI's) monetary policy committee on Friday unanimously kept the key repo rate unchanged at 6.5% for the fifth consecutive time.

The MPC also decided by a majority of 5 out of 6 members to remain focused on the 'withdrawal of accommodation' to ensure that inflation progressively aligns with the target, while supporting growth.

This comes after India's retail inflation moderated to 4.9% in October from 7.4% in July. The moderation was observed in all components of CPI – food, fuel and core. There has been broad-based easing in core inflation which is indicative of successful disinflation through monetary policy actions, RBI governor Shaktikanta Das says in his statement.

Food inflation, which was in double-digits in July, has since then moderated to 6.2% in October with the correction in vegetable prices. Fuel inflation slipped into deflation since September primarily reflecting the sharp fall in LPG prices in August-end.

"The near-term outlook, however, is masked by risks to food inflation which might lead to an inflation uptick in November and December. This needs to be watched for second-round effects," Das says.

"Going ahead, inflation outlook would be considerably influenced by uncertain food prices. High frequency food price indicators point to an increase in prices of key vegetables which may push CPI inflation higher in the near-term. The ongoing rabi sowing progress for key crops like wheat, spices and pulses needs to be closely monitored. Elevated global sugar prices is also a matter of concern," he adds.

The MPC projects CPI inflation at 5.4% for 2023-24, with Q3 at 5.6% and Q4 at 5.2%. CPI inflation for Q1 FY25 is projected at 5.2%; Q2 at 4%; and Q3 at 4.7%.

According to the RBI governor, the rate action so far is still working its way into the economy. "Monetary policy must continue to be actively disinflationary to ensure fuller transmission and anchoring of inflation expectations," says Das.

Stable repo rates will keep the momentum going for the housing market, says Anuj Puri, chairman of property consultant Anarock. "This is an extension of the festive bonanza that RBI gave to the homebuyers in its last policy announcement. It gives homebuyers yet another opportunity to make cost-optimized home purchases," says Puri.

"If we consider the present trends, the housing market is on a bull run and unchanged home loan rates will only add to the overall positive consumer sentiments. Additionally, given that housing prices have escalated across the top 7 cities in the last one year, at least the unchanged home loan rates will give some relief to the homebuyers," says Puri. As per Anarock, average housing prices have increased anywhere between 8% and 18% across the top seven cities in the last year.

According to Anshuman Magazine, chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE, a sustained GDP growth forecast and manageable inflation have helped RBI to maintain the status quo on the key policy rates. "The pause on the interest rate is expected to push sentiments further for home buyers, and this continued pause in rates is likely to boost the real estate sector significantly. Expected inflation within the comfortable range will further rekindle the hope of a declining rates regime," says Magazine.