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RBI August MPC Meet: Maintained the benchmark repo rate at 6.5%, as economist predicted.

Even though inflation is going up, the Monetary Policy Committee of the Reserve Bank of India chose to keep the key repo rate the same. The governor of India's central bank, Shaktikanta Das, announced on Thursday that the MPC had...
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Even though inflation is going up, the Monetary Policy Committee of the Reserve Bank of India chose to keep the key repo rate the same.

The governor of India's central bank, Shaktikanta Das, announced on Thursday that the MPC had decided to maintain the benchmark repo rate at 6.50 percent, in line with predictions made by economists.

This is the third time that the MPC's six members have chosen to keep the key rates the same.

According to Das, the MPC unanimously opted to keep the policy repo rate at 6.50 percent after considering all relevant factors. Therefore, the bank rate and the rates for the Marginal Standing Facility and the Standing Deposit Facility both stay at 6.75 percent.

To ensure inflation "progressively aligns with the target" while continuing to promote growth, Governor Das said the MPC resolved by a majority of 5 out of 6 members to maintain its focus on the withdrawal of accommodation.

An accommodating monetary policy stance refers to the readiness of the central bank to increase the money supply with the aim of stimulating economic growth.  Whereas, the act of withdrawing accommodation will result in a contraction of the money supply in the economy, so imposing additional control over inflation.

Governor Das, meanwhile, expressed concern over the recent spike in inflation, saying it has forced the central bank to keep its hawkish position.

Governor Das said, "After reaching a low of 4.3% in May 2023, headline inflation went up in June and is expected to go up even more in July and August, led by the price of vegetables."

Headline inflation rose in June, boosted by vegetable prices, after reaching a low of 4.3% in May 2023.

Governor Das said that despite the fact that the southwest monsoon has been off so far, it is important to keep an eye on possible El Nino weather conditions and world food prices.

He said, "These changes mean that we need to pay more attention to how inflation is changing." So far, the MPC has raised rates by a total of 250 basis points, which is having an effect on the economy.

On the bright side, the head of the RBI said that the domestic economy is doing well and is likely to keep growing, even though demand from other countries is weak.

"Because of all of these things, the MPC decided to keep an eye on things and evaluate what was happening," he said. As Governor Das mentioned in his speech, the MPC is ready to take action "should the situation call for it."

He went on to say that the MPC is still "resolute in its commitment" to bringing inflation to the goal of 4% and setting expectations for inflation.

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