RBI Keeps Repo Rate Unchanged at 6.50% for Second Time, Providing Relief to Borrowers
The Reserve Bank of India (RBI) has decided to keep the repo rate unchanged at 6.50% for the second consecutive time. This is good news for borrowers who were worried about their monthly loan payments going up.
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The repo rate is the interest rate at which the RBI lends money to banks. The decision to keep it unchanged was made unanimously by the Monetary Policy Committee (MPC), which consists of six members.
The main reason for this decision is that inflation is still above the target of 4%. The RBI’s goal is to keep inflation at 4% with a margin of plus or minus 2%.
In the last policy meeting in April 2023, the RBI had paused its series of interest rate hikes after raising rates six times since May 2022.
The RBI has maintained its projection for the country’s GDP growth at 6.5% for the fiscal year 2024. However, it has slightly lowered its inflation projection from 5.2% to 5.1% for the current fiscal year.
RBI Governor Shaktikanta Das stated that inflation has eased in recent months but is still above the target.
He emphasized the need to closely monitor inflation due to uncertainties related to the monsoon and the impact of El Nino. On the positive side, he mentioned that the GDP growth for the previous year was better than expected.
Das clarified that the decision to keep the repo rate unchanged is a “pause” rather than a “pivot,” indicating that it doesn’t signify a change in the overall stance.
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He also acknowledged that the recent increase in minimum support price (MSP) for crops will have a modest impact on inflation, as part of it was already factored into the inflation projections.
Das added that the RBI will continue to closely watch inflation and growth trends. They will take appropriate actions as needed to control inflation and reach the target.
The RBI aims to bring down inflation expectations and anchor them firmly.
Regarding the economy, Das expressed optimism and highlighted its resilience.
He mentioned factors like good crop production, expected normal monsoon, strong services sector, and lower inflation that should support household spending.
He also mentioned that conditions are favorable for investment by companies due to healthy financial positions, normalization of supply chains, and reduced uncertainty.
While there are risks to the growth outlook, such as weak global demand and geopolitical tensions, the RBI will manage liquidity effectively.
The RBI will ensure that enough money is available for the economy’s needs and will support the government’s borrowing program.
Bankers welcomed the RBI’s decision, which was largely in line with expectations. They appreciated the RBI’s clear communication and its efforts to maintain stable inflation in the future.
