Mumbai: In a surprise move, the Reserve Bank of India (RBI) kept the repo rate unchanged at 6.5 per cent at the bi-monthly policy unveiled on Thursday.
"Global economy is facing a renewed phase of turbulence. We are witnessing unprecedented uncertainties in geopolitics and economy. RBI will remain focused on withdrawal of monetary policy accommodation," RBI Governor Shaktikanta Das said.
While keeping the interest rate intact, Das said core inflation remains sticky.
The Governor also said that the Indian economy is expected to grow 7 per cent in FY23. For the next fiscal, RBI projected a growth rate of 6.5 per cent as compared to 6.4 per cent estimated in February. In the latest Economic Survey of the finance ministry, growth was projected at 6-6.8 per cent for 2023-24.
The RBI was expected to hike the benchmark interest rate this time yielding to the pressure to bring down retail inflation and keep pace with global peers.
The Monetary Policy Committee (MPC) of the RBI met for three days on April 3, 5 and 6 to take into account various domestic and global factors before coming out with the first bi-monthly monetary policy for fiscal 2023-24.
The central bank had increased the repo rate by a total of 250 basis points since May in a bid to contain inflation though it has continued to remain above the central bank's comfort zone of 6 per cent for most of the time.
Repo rate is the rate at which the RBI lends money to commercial banks. Repo rate is used by monetary authorities to control inflation. Increase in the repo rate means the cost of funds for banks will go up. In other words, this will disincentives banks from borrowing from the central bank.
This will reduce the money supply in the economy and arrest inflation.
Repo and reverse repo are part of RBI's liquidity adjustment facilities.
Retail inflation in February stood at 6.44 per cent compared to 6.52 per cent in the previous month. MPC takes into account retail inflation numbers for setting the interest rates.
However, inflation is expected to moderate in the current fiscal. Many institutions, including the World Bank and Asian Development Bank, have predicted that inflation would cool down to about 5 per cent this financial year.
Das said the Central bank's war against inflation will continue until the inflation is brought down to target level.
"The fight against inflation is far from over....," the Governor said in the monetary policy statement.
The RBI has the mandate of keeping inflation at 4 per cent, with a band of (+/-) 2 per cent on either side.
Retail inflation has remained above the RBI's upper tolerance level of 6 per cent for two months and in February it was 6.44 per cent.
(With PTI inputs)