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New Delhi. The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Friday announced its much-awaited monetary policy and decided to keep the repo rate unchanged at 5.25 percent. RBI Governor Sanjay Malhotra said that the six-member committee has taken this decision unanimously after a detailed review of the economic and financial conditions in the meeting held on June 3, 4 and 5.

Along with this, the central bank has also maintained its policy stance as ‘neutral’. The RBI Governor said that the global economic environment has become more challenging after the last monetary policy meeting in April. The ongoing tensions and fragile ceasefire situation in West Asia have led to a sharp rise in energy prices, affecting global supply chains. This is affecting both economic growth and inflation.

He said rising energy costs and supply constraints could put pressure on economic activity. However, India’s economy is able to withstand these shocks and continuous efforts are being made to further increase the economic strength of the country.

Sanjay Malhotra said that despite global challenges, retail inflation (CPI) still remains below the target level of RBI. The reason for this is that the full impact of international prices has not yet reached the domestic markets. However, there is a possibility of inflation increasing in the coming months and it may reach close to the upper limit set by RBI.

He said that the risks to inflation have increased, but in the current situation, instead of making changes in interest rates, it has been decided to let the situation become more clear. RBI will continue to take data-based decisions and keep a close watch on inflation and supply side pressures.

The Governor said that according to the second advance estimate of the National Statistical Office (NSO), India’s GDP growth rate in the last financial year stood at 7.6 percent. Strong performance by private consumption, investment, manufacturing and services sectors supported this growth. He said that even after the onset of tension in West Asia, India’s economic activities have remained largely stable. PMI data for manufacturing and services sectors show that both sectors remain strong and business confidence is also positive.

According to the RBI, consumer spending, especially discretionary spending, has remained strong so far. At the same time, despite rising costs, investment activities have also remained bullish. India’s merchandise exports also recorded good growth in April, despite rising freight and insurance costs globally.

The RBI warned that a possible shortfall in the south-west monsoon could have an impact on agricultural production and rural demand. However, government schemes like crop diversification, water conservation, water harvesting, climate resilient farming and short duration crops can help in reducing this impact to a great extent.

The Governor said the continued strength of the services sector, the positive impact of GST reforms and the relatively stable employment situation will continue to support urban consumption. However, rising inflation may put some pressure on the purchasing power of domestic households.

RBI has made it clear that in view of the current global uncertainties, rising energy prices and inflation risks, the central bank will maintain a cautious stance. At present, no change has been made in the interest rates, but further strategy will be decided based on the economic conditions in the coming months.