RBI Keeps Repo Rate Unchanged for Seventh Time: No Relief in EMIs
The Reserve Bank of India (RBI) has kept the interest rates unchanged for the seventh consecutive time. The RBI has maintained the interest rate at 6.5%. In February 2023, the RBI had increased the rate by 0.25% to 6.5%.
Expectations were that the RBI might surprise with a decision before the elections, but the RBI has not made any changes in the repo rate for the seventh time. This means there will be no relief in EMIs at the moment.
RBI Governor Shaktikanta Das today provided information on the decisions taken at the Monetary Policy Committee (MPC) meeting, which is effective from Friday, April 3. These meetings are held every two months. There was no increase in interest rates in the meeting held in February.
RBI has also not made any changes in interest rates this time, according to informed sources. This means that the RBI repo rate, which is the interest rate, has not changed. Currently, the repo rate remains at 6.50%. There was no increase in interest rates in the meeting held in February 2024 either. This was the sixth consecutive time when the RBI did not make any changes in interest rates. The last time the RBI had increased the interest rates was in February 2023, from 0.25% to 6.5%.
There are six members in the RBI’s MPC, including external and RBI officials. Along with Governor Das, RBI officials Rajiv Ranjan is the Executive Director and Michael Debabrata Patra is the Deputy Governor. Shashank Bhide, Ashima Goyal, and Jayant Arvind Varma are external members.
In the fiscal year 2025, India’s GDP is expected to grow at a rate of 7%. RBI Governor Shaktikanta Das has stated that the economic growth of India will accelerate by 7% in the fiscal year 2024-25. The real GDP growth in the first quarter of the fiscal year 2025 is estimated to be 7.1%, followed by 6.9% in the second quarter, and a growth rate of 7% in the third and fourth quarters.
Rising inflation poses a challenge RBI Governor Shaktikanta Das remarked that “Elephant (inflation) has now gone out for a walk and heading to the forest,” indicating that rising inflation has been contained. Furthermore, Das estimated that inflation would be at 4.5% and real GDP growth at 7% in the fiscal year 2024-25.
Repo rate as a powerful tool against rising inflation The repo rate is a powerful tool in the RBI’s arsenal to combat inflation. When inflation rises significantly, the RBI increases the repo rate to reduce the flow of money in the economy. If the repo rate remains high, the loans banks obtain from the RBI become more expensive.
Consequently, banks make loans more expensive for their customers. This reduces the flow of money in the economy. If the flow of money decreases, demand decreases, and inflation decreases.
Likewise, when the economy is struggling, it requires an increase in the flow of money for recovery. In such a situation, the RBI lowers the repo rate. Consequently, loans become cheaper for banks, and customers also get loans at lower rates.
This example illustrates that during the COVID-19 pandemic, economic activities were stalled, leading to a reduction in demand. In such a situation, the RBI reduced interest rates, thereby increasing the flow of money in the economy.
RBI had announced inflation and GDP estimates in February.
In the fiscal year 2025, the estimated real GDP growth has been revised upwards from 6.70% to 7%. RBI has projected retail inflation (CPI) to remain at 4.50% for FY25.
Here are the inflation figures:
- Retail inflation in February was 5.09%: Retail inflation decreased to 5.09% in February 2024 from 5.10% in January 2024. RBI’s inflation target range is 2%-6%, and RBI aims for retail inflation to remain at 4%.
- Wholesale inflation rate was 0.20%: Wholesale inflation decreased to 0.20% in February from 0.27% in January. This marks the lowest level of wholesale inflation in the last four months. In November, wholesale inflation was 0.26%. Although inflation has decreased, there has been an increase in food prices.
How does inflation affect?
Inflation directly affects purchasing power. For example, if the inflation rate is 7%, the value of earned 100 rupees will be reduced to 93 rupees. Therefore, it is essential to keep inflation in check to protect the value of money.
