Inflation Targeting: RBI aims to keep inflation at a 4% target, viewing high inflation as a risk to macroeconomic stability.
High inflation erodes purchasing power and can lead to economic instability. A 4% target is seen as a balanced level that neither stifles growth nor allows prices to spiral out of control.
Unchanged Interest Rates: The policy repo rate remains at 6.50%, unchanged for the fourth consecutive meeting.
Despite a decline in core inflation, uncertainties like volatile global food and energy prices, and low agricultural output make it risky to change rates now.
Agricultural & Environmental Factors: Fall in kharif sowing for key crops and low reservoir levels are cited as concerns.
These factors can lead to food inflation, which would further push overall inflation rates up.
Global & Geopolitical Risks: Geopolitical tensions, global economic slowdown, and volatile financial markets are considered.
These external factors can have a cascading effect on India's economy and inflation.
GDP & CPI Projections: RBI retains its real GDP growth forecast at 6.5% and average CPI inflation at 5.4% for the fiscal year.
Despite short-term inflationary pressures, the long-term economic outlook remains stable, justifying the unchanged rates.
Alert & Ready to Act: RBI is prepared for timely policy measures to align inflation to the target.
Flexibility is crucial given the various domestic and global uncertainties that could impact inflation.
In summary, RBI's decision to keep interest rates unchanged is a cautious approach aimed at balancing the need for economic growth with the imperative to control inflation.