Sunday, April 14, 2024

RBI MPC keeps repo rate unchanged at 6.5%


The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has unanimously decided to keep the repo rate unchanged at 6.5% in its August 2023 meeting. This is the third consecutive time that the MPC has kept the repo rate unchanged.

The MPC cited two main reasons for its decision. First, headline inflation remains above the RBI’s target of 4%. In June 2023, inflation rose to 7.01%, the highest level in eight months. The MPC expects inflation to remain elevated in the near term, but to gradually decline to 6.7% by March 2024.

Second, the MPC is concerned about the impact of a rate hike on economic growth. The Indian economy is expected to grow at 7.2% in 2023-24, but the MPC is worried that a rate hike could slow growth.

The MPC did not rule out a rate hike in the future, but it said that it would need to see more evidence of inflation coming down before taking any action. The next MPC meeting is scheduled for October 2023.

In the meantime, the RBI is using other tools to manage inflation, such as selling government bonds and raising the cash reserve ratio (CRR) for banks. The CRR is the percentage of deposits that banks must keep with the RBI. By raising the CRR, the RBI can reduce the amount of money that banks have available to lend, which can help to slow inflation.

The RBI’s decision to keep the repo rate unchanged is a mixed bag for businesses and consumers. On the one hand, it will help to keep borrowing costs low, which can support economic growth. On the other hand, it means that inflation is likely to remain elevated for some time, which can erode purchasing power.

Businesses will need to carefully assess the impact of the RBI’s decision on their operations. Those that are heavily reliant on borrowed funds may benefit from the low interest rates, but they will also need to be prepared for higher inflation. Consumers will also need to be mindful of the rising cost of living. They may need to cut back on discretionary spending or find ways to increase their income.

The RBI’s decision is a reminder that the global economy is still facing a number of challenges, including high inflation and rising interest rates. The RBI is trying to balance the need to control inflation with the need to support economic growth. It will be interesting to see how the MPC’s decision plays out in the coming months.

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