RBI keeps repo rate unchanged at 6.5% for eight consecutive time

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) decided on Friday to keep the repo rate unchanged at 6.5%, marking the eighth consecutive meeting without any change. This means interest rates will stay steady, postponing the possibility of cheaper loans and lower EMIs. RBI Governor Shaktikanta Das announced the decision, stating that the projected GDP growth for the current financial year 2024-25 is 7.2%, with Q1 at 7.3%, Q2 at 7.2%, Q3 at 7.3%, and Q4 at 7.2%. He noted that the risks are evenly balanced.

Key highlights

• Governor Shaktikanta Das expressed optimism about the normal south-west monsoon, anticipating a boost in kharif production and improved water storage in reservoirs.
• Governor Das reiterated the RBI’s commitment to stabilising inflation at 4% on a sustainable basis.
• The RBI emphasized its focus on withdrawing its accommodative policy stance in the future.
• Governor Das expressed concerns about the persistently high levels of food inflation.
• The RBI is working on models to position itself as a modern apex bank, focusing on enhancing its capabilities and efficiency.

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Market Experts Predicted RBI to Maintain Benchmark Interest Rate Amid Inflation Concerns

Earlier, market experts anticipated that the RBI would maintain the current benchmark interest rate of 6.5%, which has been unchanged since February 2023, due to ongoing concerns about inflation. Despite inflation worries, the European Central Bank and Bank of Canada have started to reduce their key rates. However, the RBI’s Monetary Policy Committee (MPC) is expected to hold the interest rates steady. Das is set to announce the decision at 10 AM after the MPC concludes its deliberations, which began on Wednesday.

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Economic growth considerations

Experts believed the RBI might refrain from cutting rates due to the current economic growth momentum, despite the high repo rate. An SBI research paper supports this view, suggesting that the central bank should maintain its current stance on withdrawing accommodation. The paper forecasts a potential repo rate cut in the third quarter of the fiscal year, though it predicts a shallow rate cut cycle.

RBI’s mandate

The government has tasked the RBI with maintaining retail inflation at 4%, with a margin of 2% on either side. The MPC, which is responsible for setting the rates, comprises three external members—Shashanka Bhide, Ashima Goyal, and Jayanth R Varma—and three RBI officials.

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