RBI Keeps Repo Rate Unchanged At 6.5%, Lowers GDP Projection To 6.6% Amid High Inflation Concerns

New Delhi: Citing high inflation, the Reserve Bank of India (RBI) has kept its key lending rate unchanged for the 11th consecutive time. It has also lowered the growth target for the current financial year to 6.6%.

The decision was taken by 4:2 majority at the six-member Monetary Policy Committee meeting on Friday. The lending or the repo rate has been kept at 6.5%, RBI Governor Shaktikanta Das announced. An unchanged repo rate means that the loan interest rates are likely to stay the same.

This has come as a major disappointment for the investors, who have been expecting a rate cut after a slowdown in the July-September quarter of the current fiscal.

The RBI had paused the rate increase cycle in April 2023. The MPC, which meets every two months, lowered the growth target for this fiscal year to 6.6% from 7.3% in the July-September quarter.

The RBI Governor attributed the decline in growth to deceleration in industrial growth. “Growth in real GDP in the second quarter of this year at 5.4% turned out to be much lower than anticipated. This decline in growth was led by a substantial deceleration in industrial growth from 7.4% in the first quarter to 2.1% in the second quarter due to the subdued performance of manufacturing companies, contraction in mining activity and lower electricity demand,” the RBI Governor said.

The weaknesses in the manufacturing sector, however, was not broad-based but was limited to specific sectors such as petroleum products, iron and steel and cement, he added. “Going forward, high-frequency indicators available so far suggest that the slowdown in domestic economic activity bottomed out in the second quarter of this year and it has since recovered aided by strong festive demand and pickup in rural activities. Agricultural growth is supported by healthy Kharif crop production, higher reservoir levels and better ruby sowing. Industrial activity is expected to normalize and recover from the lows of the previous quarter,” Das explained.