The Reserve Bank of India's Monetary Policy Committee has left the benchmark repurchase rate unchanged at 6.50 percent at its policy review held today, in line with the consensus forecast. This rate has now been on hold since February 2023 after it was earlier increased by a cumulative 250 basis points beginning in mid-2022.

The RBI did, however, cut its bank reserve requirement by 50 basis points to 4.0 percent as a means of boosting liquidity in the banking system and to address seasonal demand for reserves. By freeing up reserves, banks are in position to expand lending.

Data released since the RBI's previous meeting in October have shown headline CPI inflation increasing from 3.65 percent in August to 5.49 percent in September and 6.21 percent in October, above the RBI's target range of two percent to six percent. This increase was anticipated by offcials and mainly reflects the impact of higher food prices.

In the statement accompanying today's decision, RBI officials noted that the recent spike in inflation highlighted risks to the outlook and reaffirmed their commitment to"restoring the balance between inflation and growth in the overall interest of the economy". With officials expressing confidence about the outlook for growth, it is clear that inflation remains their main focus.

The statement also notes that officials' policy stance remains"neutral" for now. This, they judge, will provide them with greater flexibility in upcoming meetings while enabling them to continue monitoring the path of disinflation. They also repeated their earlier pledge to remain focused on achieving"a durable alignment of the headline CPI inflation with the target".

The consensus looks for the RBI hold rates steady at 6.50% after shifting its stance to neutral at the last meeting. A very weak GDP report last week raises the risk of a cut but high inflation argues for no action.

The Reserve Bank of India (RBI) issues six Bi-monthly Policy Statements a year. During these announcements the RBI will signal any shifts in its monetary stance, particularly with reference to the benchmark repo interest rate and its cash reserve ratio (CRR). The Governor will also update the Bank's view of recent economic developments and provide new forecasts for inflation and growth. A 4 percent inflation target with a +/- 2 percentage point tolerance band was formally implemented in August 2016 and will be overseen by a new six-member Monetary Policy Committee (MPC).

Although the RBI monitors many economic indicators - as indeed all central banks do - the RBI most closely monitors inflation. The level of interest rates affects the economy. Higher interest rates tend to slow economic activity while lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, fewer homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or for those who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India. The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.

The Reserve Bank of India performs this function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India. Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. Its function is to advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks; to perform such other functions as delegated by Central Board from time to time. Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. The Board is required to meet normally once every month. It considers inspection reports and other supervisory issues placed before it by the supervisory departments.