The Reserve Bank of India (RBI) has kept its key lending rate, the repo rate, unchanged at 6.5% in a bid to balance concerns about rising inflation with the need to support economic growth. This marks the fifth consecutive policy meeting where the rate has remained stable.
Factors influencing the decision:
Rising inflation: While the headline inflation rate has eased slightly, it remains above the RBI’s target of 4%. Recent spikes in vegetable prices, particularly onions and tomatoes, raise concerns about potential inflationary pressures in the coming months.
Strong economic growth: The second-quarter GDP print of 7.6% exceeded expectations, prompting the RBI to revise its growth estimate for FY 2024 upwards to 7%. This positive economic performance creates space for the central bank to maintain a steady monetary policy stance.
Balancing act: The RBI faces a delicate balancing act. While controlling inflation is crucial, it must also ensure its policies do not hinder economic growth. Maintaining the repo rate allows the central bank to monitor the situation closely and adjust its stance as needed.
Impact on borrowing and lending:
Loan rates: Existing loan rates are expected to remain unchanged. However, some segments of retail loans may become more expensive due to recent changes in risk weights by the RBI.
Deposit rates: Banks may offer higher interest rates on savings deposits, as seen in certain segments recently.
Equated monthly instalments (EMIs): Borrowers can breathe a sigh of relief as their EMIs will not increase due to the unchanged repo rate.
Future outlook:
The RBI will continue to monitor inflation closely and adjust its policy stance as needed. The trajectory of inflation, particularly food prices, will be a key factor in determining the central bank’s next move.
