India Monetary Policy December 2023

India: RBI stands pat for fifth meeting in a row in December

On 8 December, the Reserve Bank of India (RBI) left the repo rate unchanged at 6.50% for the fifth month running, as expected by the market. It also left its standing deposit facility and marginal standing facility rates unchanged at 6.25% and 6.75%, respectively. All board members voted for the decision.

To justify its decision, the RBI said that past tightening was still “working its way through the economy”; inflation remains above the RBI’s 4.0% target. Past shocks to food prices—such as this year’s monsoon, which was the weakest in five years—have prevented inflation from declining more sharply.

Meanwhile, the RBI said it would keep its policy stance focused on the “withdrawal of accommodation”, maintaining a hawkish tone.

The Consensus is for the RBI to begin lowering interest rates in the next fiscal year, which starts in April.

The RBI’s next meeting is due on 6–8 February.

Analysts at Goldman Sachs said:

“In our baseline scenario, we continue to expect the RBI to look through the temporary spike in food inflation, take comfort from declining core inflation but continue with hawkish guidance and a tight liquidity stance and keep the policy repo rate unchanged until Q3 CY24.”

Analysts at ANZ commented:

“With growth on a strong course, the RBI will remain focused on bringing inflation down to 4%. We do not foresee any rate cuts before Q3 2024.”

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