Repo rate remains unchanged at 6.5% for ninth consecutive time

The Reserve Bank of India’s Monetary Policy Committee on Thursday decided to keep the repo rate unchanged at 6.5% for the ninth time in a row.

The Monetary Policy Committee voted four to two to maintain the policy repo rate at 6.5%, Reserve Bank Governor Shaktikanta Das said on Thursday.

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 to control inflation. 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 Reserve Bank said on Thursday said its decision to keep the repo rate unchanged was in consonance with its objective of keeping consumer price index inflation to 4% with a margin of 2% above and below that mark, while supporting growth at the same time.

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.

The Reserve Bank governor said on Thursday that the country real gross domestic product growth is predicted to be 7.2% for 2024-’25, with a projection of 7.1% in the first quarter, 7.2% in the second quarter, 7.3% in the third quarter and 7.2% in the fourth quarter.

Food inflation can’t be ignored, says RBI

Shaktikanta Das, the Reserve Bank of India governor, said that food inflation pressures cannot be ignored considering the significant share of food in the consumption basket, The Indian Express reported.

On July 22, the Economic Survey had said it was “worth exploring” if the country’s framework to target price rise should exclude food inflation.

Das, however, said on Thursday that food price rise accounted for more than 75% of headline inflation in May and June. He added that citizens at large understand inflation more in terms of food price rise than other components.

“Therefore, we cannot and should not become complacent merely because core inflation has fallen considerably,” he said.

The Economic Survey had noted that in developing countries, food constitutes a very high portion of the consumer price index, which is the basis for measuring inflation. Due to this, it argued, when central banks in such countries want to rein in headline inflation, they urge the government to control food price rise.

The survey said that this prevents farmers from benefiting from the rise in terms of trade in their favour.