RBI Maintains Repo Rate at 6.5% for Ninth Consecutive Time
RBI keeps repo rate unchanged at 6.5% to curb inflation, contrasting global central banks. FY25 growth forecast at 7.2%, inflation at 4.5%.
By : Falaknaaz Syed
Update: 2024-08-08 14:09 GMT
Mumbai: As widely expected, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) continued to maintain a status quo on rates and policy stance to ensure sustained cooling of inflation. This marked the ninth consecutive time the repo rate has been held unchanged at 6.5 per cent.
The MPC decided by a majority of 4 out of 6 members voted to make no changes in interest rates and policy stance of withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting economic growth, the RBI Governor Shaktikanta Das said.
The repo rate is the rate at which the RBI lends money to banks to meet their short-term funding needs. A status quo in repo rate means that all external benchmark lending rates (EBLR) that are linked to the repo rate will remain unchanged providing relief to borrowers. The RBI has hiked policy rates by 250 basis points between May 2022 and February 2023, since then it has kept the repo rate unchanged at 6.5 per cent to align inflation to the 4 per cent target.
Das said that the RBI cannot ignore food inflation while formulating the monetary policy. He said that the weightage of food in the overall consumer price inflation, which stands at 46 per cent currently, was done in 2011-12, and needs to be revisited, and added that analysis work is going on by the National Statistical Office.
The RBI’s status quo is in sharp contrast to the shift in monetary policy stance of other major global central banks. While the European Central Bank (ECB) and Bank of England (BOE) have initiated a rate cut, the Bank of Japan (BoJ) has raised its policy rate, and the US Federal Reserve (Fed) is likely to cut rates this September following a sharp weakening in the country’s labour market.
The MPC retained its forecasts for India's economic growth in FY25 at 7.2 per cent and inflation at 4.5 per cent for FY25.
Since the last monetary policy meeting, Consumer Price Index inflation (CPI) has risen, though trending within the MPC’s tolerance range of 2-6 per cent. It rose to 5.1 per cent in June from 4.8 per cent in the previous month. Moreover, food inflation was considerably above the headline reading, and surged to 9.4 per cent in June from 8.7 per cent in the previous month.
Das said that India’s vulnerability remains low given the benign current account deficit and record-high foreign exchange reserves which has improved the country’s ability to mitigate external shocks.
DK Joshi, chief economist at Crisl Ltd said, “We expect the RBI to begin cutting rates from October at the earliest, lest weather and international commodity prices play spoilsport. Overall, we expect two rate cuts this fiscal.”
The repo rate is the rate at which the RBI lends money to banks to meet their short-term funding needs. A status quo in repo rate means that all external benchmark lending rates (EBLR) that are linked to the repo rate will remain unchanged providing relief to borrowers. The RBI has hiked policy rates by 250 basis points between May 2022 and February 2023, since then it has kept the repo rate unchanged at 6.5 per cent to align inflation to the 4 per cent target.
Das said that the RBI cannot ignore food inflation while formulating the monetary policy. He said that the weightage of food in the overall consumer price inflation, which stands at 46 per cent currently, was done in 2011-12, and needs to be revisited, and added that analysis work is going on by the National Statistical Office.
The RBI’s status quo is in sharp contrast to the shift in monetary policy stance of other major global central banks. While the European Central Bank (ECB) and Bank of England (BOE) have initiated a rate cut, the Bank of Japan (BoJ) has raised its policy rate, and the US Federal Reserve (Fed) is likely to cut rates this September following a sharp weakening in the country’s labour market.
The MPC retained its forecasts for India's economic growth in FY25 at 7.2 per cent and inflation at 4.5 per cent for FY25.
Since the last monetary policy meeting, Consumer Price Index inflation (CPI) has risen, though trending within the MPC’s tolerance range of 2-6 per cent. It rose to 5.1 per cent in June from 4.8 per cent in the previous month. Moreover, food inflation was considerably above the headline reading, and surged to 9.4 per cent in June from 8.7 per cent in the previous month.
Das said that India’s vulnerability remains low given the benign current account deficit and record-high foreign exchange reserves which has improved the country’s ability to mitigate external shocks.
DK Joshi, chief economist at Crisl Ltd said, “We expect the RBI to begin cutting rates from October at the earliest, lest weather and international commodity prices play spoilsport. Overall, we expect two rate cuts this fiscal.”