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RBI repo rate unchanged at 6.5%

Personal Finance
2 min Read Aug 8, 2024
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The Reserve Bank of India's Monetary Policy Committee (MPC) has once again decided to keep the repo rate unchanged at 6.5%. This marks the ninth consecutive time the central bank has held its key lending rate steady. Before delving into the recent RBI decision, let's understand the concept of the repo rate. 

What is the RBI repo rate?

The RBI repo rate is the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks in case of any shortfall of funds. In essence, it's a tool used by the central bank to control the money supply in the economy.

RBI repo rate stays the same

The Reserve Bank of India's Monetary Policy Committee (MPC) has once again decided to maintain the repo rate unchanged at 6.5%. This decision marks the ninth consecutive hold by the central bank.

The RBI's stance reflects a delicate balancing act. While inflation has shown signs of moderation, it still persists above the central bank's target of 4%. Simultaneously, the Indian economy is demonstrating resilience, but global economic uncertainties continue to cloud the horizon.

Why did the RBI repo rate stay unchanged?

Several factors contributed to the RBI's decision to maintain the status quo:

  • Persistent Inflation: Although inflation has eased, it remains above the RBI's target, necessitating a cautious approach.

  • Global Economic Uncertainties: The ongoing geopolitical tensions and the evolving global economic landscape have introduced complexities into the decision-making process.

  • Domestic Economic Growth: India's economy has shown resilience, but the RBI is closely monitoring various indicators to assess the durability of the recovery.

Implications of the RBI repo rate decision

The RBI's decision to hold the repo rate steady has both positive and negative implications:

  • Relief for Borrowers: The unchanged repo rate provides relief to borrowers as their equated monthly instalments (EMIs) on home and personal loans will not increase.

  • Impact on Savings: Depositors may continue to receive relatively higher interest rates on their savings accounts and fixed deposits.

  • Rupee Stability: The decision could contribute to rupee stability as it aligns with expectations of a gradual rate hike cycle.

Outlook for future RBI repo rate action

While the RBI has maintained a cautious stance, the possibility of a rate cut cannot be entirely ruled out. The central bank will closely monitor inflation trends, global economic developments, and domestic growth dynamics to determine the future course of monetary policy.

A favourable monsoon, easing global commodity prices, and sustained economic growth could create conditions for a rate cut in the coming months. However, the RBI is likely to adopt a gradual and data-dependent approach.

The RBI's decision to maintain the repo rate at 6.5% underscores the complexities of monetary policy management in a dynamic economic environment. As the situation evolves, the central bank will continue to assess the appropriate policy stance to balance growth and inflation objectives.