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.
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“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, 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.
Retaining its unambiguous focus on inflation, the MPC, which consists of three RBI and three external members, kept the benchmark repurchase or repo rate unchanged at 6.50%.
Four out of the six members of MPC voted in favour of the rate decision. The panel, whose four-year term ends in October, also decided to retain a policy stance at “withdrawal of accommodation” to aid MPC’s focus on bringing inflation towards its 4% target.
Das said food inflation remains “stubbornly” high.
Inflation climbed to 5.08% in June, primarily driven by the food component.
“Without price stability, high growth cannot be sustained,” he said, adding that “monetary policy must continue to be disinflationary”.
He said the MPC could have looked through high food inflation if it was transitory.
“But in an environment of persisting high food inflation, as we are experiencing now, the MPC cannot afford to do so. It has to remain vigilant to prevent spillovers or second-round effects from persistent food inflation and preserve the gains made so far in monetary policy credibility.”
The MPC last revised interest rate in February 2023, when it was hiked to 6.5%.
The status quo by RBI comes amid varied central bank action in advanced economies. While the Bank of England reduced interest rates last week, Bank of Japan hiked rates to their highest levels since 2008. Also, fears of a US recession have risen on the back of weak employment numbers, piling up pressure on the Federal Reserve to start cutting rates to support the economy.
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.
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.
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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