Mumbai: As widely expected, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Friday kept the policy repo rate unchanged at 6.5 per cent for the seventh consecutive time and continued its withdrawal of accomodation stance. The repo rate is the rate of interest at which the central bank lends to banks. So, in case your home loan is linked to an external benchmark, which is the repo rate in most cases, your Equated Monthly Instalments (EMI) will remain unchanged for now. Since October 1, 2019, banks have linked floating-rate retail loans to an external benchmark, which is the repo rate in most cases. Any changes in the repo rate directly influence the interest rates on these loans.
Explaining the rationale behind the MPC decision, RBI governor Shaktikanta Das said, “Robust growth prospects provide the policy space to remain focused on inflation and ensure its descent to the target of 4 per cent. As the uncertainties in food prices continue to pose challenges, the MPC remains vigilant to the upside risks to inflation that might derail the path of disinflation. Under these circumstances, monetary policy must continue to be actively disinflationary to ensure anchoring of inflation expectations and fuller transmission of the past actions. The MPC, therefore, decided to keep the policy rate unchanged at 6.50 per cent in this meeting and remain focused on withdrawal of accommodation. The MPC will remain resolute in its commitment to aligning inflation to the target.”.
“Two years ago, around this time, when CPI inflation had peaked at 7.8 per cent in April 2022, the elephant in the room was inflation,” Das said.
“The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis. In other words, it is essential, in the best interest of the economy, that CPI inflation continues to moderate and aligns to the target on a durable basis. Till this is achieved, our task remains unfinished.” Das said.
The RBI retained its inflation projection for FY25 at 4.5 per cent and GDP at 7 per cent.
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. Economists said that the likelihood of rate cuts or change in stance are increasingly being pushed forward to the third quarter of FY25.
“With 4 per cent inflation target in FY26, the RBI is possibly guiding the market with a prolonged rate-cut cycle…We expect a series of rate cuts beginning October 2024, followed by another in December 2024 and possibly in February 2025. The stance change can happen in October itself,” Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.
