RBI’s Latest Policy: No Change in Interest Rates for 9th Consecutive Time; Repo Rate Stays at 6.5% Impacting Loan-EMI Rates

The Reserve Bank of India (RBI) has once again decided not to change the interest rates, maintaining them at 6.5% for the ninth consecutive time. This means that loans will not become more expensive, and your EMI will not increase. The last adjustment made by the RBI was in February 2023, when rates were raised by 0.25% to reach 6.5%.

RBI Governor Shaktikanta Das announced the decisions made during the Monetary Policy Committee (MPC) meeting, which has been ongoing since Thursday, August 6. This meeting is held every two months. In its previous meeting held in June, the RBI had also opted not to raise interest rates.

The MPC of the RBI consists of six members, including both external and RBI officials. Along with Governor Das, the committee includes RBI officials Rajiv Ranjan as Executive Director and Michael Debabrata Patra as Deputy Governor. The external members are Shashanka Bhide, Ashima Goyal, and Jayanth R. Varma.

RBI Maintains GDP Growth and Inflation Forecasts

The RBI has kept its GDP growth forecast for FY25 at 7.2%. Additionally, the inflation forecast for FY25 remains unchanged at 4.5%.

Repo Rate as a Tool to Combat Inflation

The repo rate is a powerful tool for the RBI to combat inflation. When inflation is high, the RBI tries to reduce the flow of money in the economy by increasing the repo rate. A higher repo rate makes loans from the RBI to banks more expensive.

As a result, banks charge higher interest rates on loans to their customers. This reduces the flow of money in the economy, leading to decreased demand and, subsequently, reduced inflation.

Conversely, during economic downturns, increasing the flow of money is crucial for recovery. In such cases, the RBI lowers the repo rate. This makes loans from the RBI cheaper for banks, which in turn allows banks to offer loans to customers at lower rates.

For example, during the COVID-19 pandemic, economic activities came to a halt, leading to decreased demand. To stimulate the economy, the RBI reduced interest rates, thereby increasing the flow of money and supporting economic recovery.

Understanding Inflation Statistics

Retail Inflation in June: 5.08%

In June, retail inflation rose to 5.08%, marking the highest rate in four months. In comparison, inflation was 4.85% in April and 4.75% in May. These figures were released by the National Statistical Office (NSO) on July 12. The RBI’s inflation target range is 2%-6%.

Wholesale Inflation in June: 3.36%

Wholesale inflation reached a 16-month high in June, climbing to 3.36% according to figures released on July 15. This is up from 3.85% in February 2023. Additionally, food inflation increased from 7.40% in May to 8.68% in June.

How Inflation Affects Purchasing Power

Inflation directly impacts purchasing power. For example, if the inflation rate is 7%, the value of 100 rupees earned would effectively be reduced to only 93 rupees. Therefore, it’s crucial to consider inflation when making investments; otherwise, the value of your money will decrease over time.