The Reserve Bank of India’s Monetary Policy Committee on Friday decided to keep the repo rate unchanged at 6.5% for the eighth consecutive time.
The repo rate is the interest rate at which the central bank lends money to commercial banks. The Monetary Policy Committee decides on changes to it every two months.
Central banks usually increase key lending rates amid high inflation in economies. Higher key lending rates translate into high interest on loans disbursed by commercial banks. This, in turn, keeps a check on discretionary spending by consumers which is expected to help curb prices rise due to high inflation. However, a higher repo rate also means that the borrowers pay more interest on their loans.
The increase in repo rate was paused in April 2023 after six consecutive hikes aggregating to 250 basis points since May 2022. A basis point is one-hundredth of a percentage point. Basis points are used to describe the percentage change in the value of a financial instrument.
On Friday, Reserve Bank of India Governor Shaktikanta Das, said that four of the six-member committee had voted in favour of keeping the repo rate unchanged after “a detailed assessment of the evolving macroeconomic and financial developments”.
“The MPC also decided by a majority of four out of six members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth,” said Das.
Das further announced that India’s real gross domestic product for the financial year 2024-’25 is projected at 7.2%.
“During 2024-’25 so far, domestic economic activity has maintained resilience,” said the governor of the central bank. “Manufacturing activity continues to gain ground on the back of strengthening domestic demand. The eight core industries posted healthy growth in April 2024.”
He also said that the committee will remain vigilant to any risk of food inflation.
The projection for the Consumer Price-based Inflation for the financial year 2024-’25 remains at 4.5%, in line with the central bank’s announcement in April.
The Centre has mandated the Reserve Bank of India to keep Consumer Price-based Inflation at 4%, with a margin of 2% above and below that mark.
“The forecast of above normal monsoon bodes well for the kharif season,” said Das. “Wheat procurement has surpassed last year’s level. The buffer stocks of wheat and rice are well above the norms. These developments could bring respite to food inflation pressures, particularly in cereals and pulses.”
Das said the outlook on crude oil prices remains uncertain due to geo-political tensions.
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