9 Times and Counting: Repo Rate on Hold Again, Decoding RBI’s Steady 6.5% Stance
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RBI Governor Shaktikanta Das
RBI decided to keep the policy rate unchanged for the ninth time in a row
RBI has kept the benchmark interest rate unchanged for the 9th time in a row at 6.5%. This means the central bank has again decided to continue with the withdrawal of the accommodative monetary policy stance.
Announcing the third bi-monthly monetary policy for the current financial year, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged.
“Inflation and growth are evolving in a balanced manner, though we need to remain vigilant on the food prices front,” Das said.
Why Repo Rate Unchanged?
RBI decided to keep the policy rate unchanged for the ninth time in a row, saying food inflation remains stubborn.
The repo rate is the interest rate at which the RBI lends money to commercial banks. Essentially, it’s the rate at which banks borrow money from the central bank.
Adhil Shetty, CEO of Bankbazaar.com, said, “With inflation remaining above the RBI’s target levels and food prices still on the higher side, along with global uncertainty due to tensions in the Middle East, the MPC has kept the repo rate unchanged at 6.5% for the ninth consecutive time.”
In the previous policy review in June 2024, the RBI had raised the FY25 GDP forecast to 7.2% from 7%, while maintaining the CPI inflation projection at 4.5% for FY25.
Last week, the US Federal Reserve also kept its benchmark interest rate unchanged at 5.25-5.50%, with a possible rate cut on the table for the next meeting in September.
Pradeep Aggarwal, Founder & Chairman, Signature Global (India), also added that the decision to keep rates unchanged is on expected lines to keep inflation under check.
“While the RBI is focused on reining in inflation within its target limit, the expectation of good monsoon may prompt the apex bank to lower interest rates in the subsequent months thereby further propelling real estate sales momentum and also providing an opportunity to perspective homebuyers to enter in the market,” Aggarwal said.
The MPC is entrusted with the responsibility of deciding the policy repo rate to achieve the inflation target of 4%, keeping in mind the objective of growth.
RBI Governor added retail inflation based on the consumer price index (CPI) increased to a four-month high of 5.08% in June as food items, including vegetables became dearer. The government will release the data for July later this month.
The rate increase cycle was paused in April last year after six consecutive rate hikes, aggregating to 250 basis points since May 2022.
RBI Governor projected retail inflation at 4.5% during FY’25 assuming normal monsoon.
High food inflation also impacts household inflation expectation, he said.
Continued high food prices slowed the process of disinflation in Q1FY’25.
MPC will remain watchful of elevated food inflation.
The RBI Governor said a degree of relief in retail inflation is expected from pickup in southwest monsoon.
The RBI Governor added that the food component of inflation remains stubborn.
The RBI keeps the growth projection unchanged at 7.2% for the current financial year.
Global economic outlook exhibits steady, though uneven expansion.
Current Repo Rate in India
As of August 8, 2024, the repo rate in India is 6.5%.
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