Economists unpack RBI MPC's policy decisions, echo inflation worries

economictimes.indiatimes.com:

repo rate and GDP growth forecast unchanged at 6.5 per cent, said Governor Shaktikanta Das while announcing the rate-setting panel’s decisions. «The MPC decided to remain watchful and evaluate the situation,» said governor Das. The rate-setting panel unanimously opted to hold the key lending rate steady, in-line with analysts' expectations. The repo rate, the key policy rate at which the RBI lends to the banks, was last increased in February 2023 by 25 basis points (bps). The RBI had kept the rate unchanged in April and June meetings, after hiking rates cumulatively by 250 bps. We take a quick look at economists’ view of RBI’s latest decisions.Dr. Aurodeep Nandi, India Economist and Vice President at Nomura

RBI repo rate kept unchanged at 6.5% for third time in a row

The dilemmatic issue for the RBI in the run-up to the August policy meeting was that on the one hand, the sharp rise in vegetable and broader food prices has led to a sharp increase in the inflation outlook, which risks impacting the RBI’s inflation targeting credibility if it sounded too dovish. But on the other hand, the supply side nature of these shocks, and softening core inflation limits the need for monetary policy tightening in response. In the meeting, the RBI struck a fine balance between the two –by retaining policy interest rate and ‘withdrawal of accommodation’ stance and stating that it is ready to look through the inflation increase ‘for some time’, but also expressed the readiness to act in case inflationary pressures generalise. The key surprise for the market though was the temporary imposition of incremental CRR of 10% to absorb surplus liquidity. “Hiking the CRR would have had monetary policy connotations, so the