RBI keeps repo rate unchanged at 6.5% for third time
The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) has opted to maintain the key repo rate at 6.5%, marking the third consecutive time this decision has been made. The stability in the repo rate comes after the MPC hiked it by 250 basis points from May 2022 to February 2023. The Standing Deposit Facility (SDF) rate remains at 6.25%.
RBI Governor expressed concern over rising inflation
RBI Governor Shaktikanta Das expressed concern over the recent sharp rise in inflation, prompting the central bank to adopt a hawkish stance. A majority of MPC members (5 out of 6) decided to focus on withdrawing accommodation to ensure inflation aligns with the 4% target while supporting growth. The decision to keep the repo rate unchanged was unanimous, said Das.
Inflation is expected to rise in July, August
Das said the headline inflation is expected to rise during July and August. According to him, the hike in vegetable prices may reverse soon, but El Nino weather conditions, global food prices, and a skewed Southwest Monsson could still affect the inflation trajectory. The MPC also retained its GDP growth projection for FY23-24 at 6.5%.
What is repo rate?
Banks charge interest on loans they provide to customers. Similarly, when banks take loans from RBI to meet short-term liquidity needs, the central bank also charges interest. The rate at which RBI lends money to commercial banks is called the repo rate. An increase in the repo rate would lead to loans becoming expensive. At the same time, it can reduce inflation.
