The Reserve Bank of India’s Monetary Policy Committee on Wednesday decided to keep the repo rate unchanged at 6.5% for the tenth time in a row.
The Monetary Policy Committee voted five to one to maintain the policy repo rate at 6.5%, Reserve Bank Governor Shaktikanta Das said.
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.
On Wednesday, the Reserve Bank also changed the monetary policy stance from “withdrawal of accommodation” to “neutral”.
A neutral stance means that the Reserve Bank remained flexible in adjusting policy rates based on prevailing economic conditions. In contrast, a withdrawal of accommodation is a restrictive stance where the central bank aims to reduce the money supply in the economy by increasing interest rates to curb inflationary pressures.
“Prevailing and expected inflation, growth balance have created congenial condition for change in monetary policy stance to ‘neutral,’” Das said.
In a statement, the Reserve Bank said that its decision to keep the repo rate unchanged stemmed from risks related to “heightened global geo-political risks, financial market volatility, adverse weather events and the recent uptick in global food and metal prices”.
The committee had to remain vigilant about the evolving inflation outlook, it said.
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 on Wednesday also said that India’s real gross domestic product growth was projected to be 7.2% for 2024-’25. This number remained unchanged from the last projection.
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