RBI Keeps Repo Rate Unchanged at 6.5%: What It Means for India’s Economy

RBI Keeps Repo Rate Unchanged at 6.5%: What It Means for India’s Economy

The Reserve Bank of India (RBI) stole the headlines by deciding on keeping the repo rate unchanged at 6.5% in its latest monetary policy meeting. This is the tenth consecutive time the central bank has opted to maintain the rate, which happens to be a crucial benchmark that influences borrowing costs across the economy. The RBI Governor, Shaktikanta Das, announced this decision and has himself adopted a tone of neutrality going ahead from now, much more profoundly than the earlier withdrawal of accommodation.

Now, let’s delve deeper to understand what the factors really mean for the Indian economy, inflation, and monetary policy decisions in the future.

Highlights of this Decision

Repo rate remains stable at 6.5%. This is the rate at which the central bank, RBI lends to banks. Here, it is seen that the central bank is cautious on the side and is hoping to maintain stability in growth and at the same time curb inflation to a certain level.

Now, the neutral stance is a change in the direction of the RBI, which was concentrated on withdrawing accommodative measures put in place during the pandemic to actually fuel the economy; the central bank is now more flexible and open to the possibility of raising or lowering rates in accordance with future economic data-precisely inflation trends.

By the policymakers’ yardstick, inflation has been the issue for long. While retail inflation has subdued in recent months, the focus continues on it. RBI forecasted inflation for FY25 at around 4.5% while keeping an eye on global and local factors influencing prices.

The economic front underpin the GDP growth at 7.2% for FY25 from Governor Das. This signals optimism about the robustness of the Indian economy, despite global uncertainties and ongoing inflationary pressures.

How Would the Consumers Be Affected?

An unchanged repo rate typically does not change the borrowing cost of consumers. If interest rates on home loans, personal loans, or auto loans are considered, an unchanged repo rate simply means that interest rates on these products would be less likely to change. This keeps loan costs predictable, thereby keeping good news for the consumer and the business alike.

The decision of not raising interest rates reassures consumers carrying floating-rate loans that their EMIs are stable, at least in the near term.

Effect on Inflation

An economy like India, almost any other, is grappling with the issue of inflation, the most recent wave of which is fuelled by the global disruptions in supply, rising fuel and food prices, among others. It has, in fact, shown some moderation of late, but that apart, the RBI, in its assessment of different factors, remains circumspect because several do show signs of pushing the inflation rate higher. Hence it is upon monitoring food prices during the festival season and other emerging global risks, namely rising oil prices.

The RBI has opted to keep repo rates steady, which also reflects that central banks do not feel a compelling need to apply aggressive tightening of monetary policy in response to the inflationary pressures in the near term. However, it moves to a neutral stance, indicating preparedness in case inflationary trends deteriorate moving ahead.

What to expect from the RBI's Neutral Stance?

The neutral posture adopted by the RBI also offers increased flexibility on its future decisions. In other words, it will abandon its central focus of with-drawing some excess liquidity from the economy as it has been doing so far. Instead, it considers both growth and inflation metrics before undertaking other adjustments in the future.

For the time being, MPC watches the inflationary pressures but is also not averse to augmenting growth. It is this balanced approach that may be particularly useful at times when the global economy and domestic economies are exposed to all kinds of risks.

The Global Perspective: External Developments Impact India

Global economic forces do not provide an insulation to India. Inflation in major economies, say the US and Europe; crude oil fluctuations and geopolitical tensions are disturbances in world economy that have spillover effects on Indian inflation and growth. For example, an increase in oil price results in a higher transport cost, which, in turn inflates the price of goods.

This means that the RBI decisions will continue to be influenced by external factors it has no control over. Over the following months, Governor Das said that global risks, especially in commodity prices, would be “closely watched”.

Will the RBI Change its Repo Rate Soon?

The RBI remains neutral currently, in a “wait-and-watch” mode. Further policy would be completely dependent upon the trends of inflation and new economic information that may come forth. If inflation moves upward once again or if global conditions deteriorate, the RBI could hike interest rates in the future. Alternatively, if the inflation rate remains steady and the economy grows as projected, there even might be scope for some rate cuts to be implemented in the future.

However, as of now, the situation indicates that the RBI will not even think to change its policy sharply in the immediate near term. The inflationary or global economy will not change swiftly until such drastic changes take place.

Conclusion

The RBI’s decision to let the repo rate stand at 6.5% does delicately balance controlling inflation and growth in the economy, and it is a step toward conversion to a neutral central bank that has better room to maneuver in response to whatever challenges lie ahead; continuation of focus on inflation is also a very cautious approach toward price stability.

This is comforting for borrowers, as the interest rate will most likely remain steady at least for now. The rest of the sets are to be witnessed as there are some external global risks on the way, to which the RBI’s next move will be followed quite closely.
Read More At Here

Disclaimer:

All above recommendations are of the market analysts. Neither the author, nor the brokerage firm, nor Stockstoday.in will be responsible for any loss arising out of any such decision taken based upon this information. All users are cautioned to take their own expert advice prior to making any investment decision.

Web Stories
India’s gig economy:
India’s gig economy: