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New Delhi: At a time when the Centre is attempting to lower the inflation towards its 4% target, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept the repo rate unchanged at 6.50% for a ninth straight policy meeting on Thursday. The RBI has also kept its interest rate unchanged.
Four out of six MPC members reportedly voted in favour of the rate decision. Experts opined that the RBI had chosen to keep the repo rate unchanged driven by the concerns arising out of the uneven monsoon impacting agriculture production and food price inflation. In addition, the issues relating to the geopolitical crisis may have also impacted RBI’s decision.
The RBI has also decided to retain the withdrawal of accommodation stance. “We are seeing good amount of convergence between market expectations and RBI policies, they are well aligned,” RBI governor, Shaktikanta Das, said.
Earlier, the RBI had slashed the repo rate by 40 basis points to 4% in May 2020 when the Covid pandemic hit the country, leading to slowdown in demand, production cuts and job losses. Since then, the RBI has increased the repo rate by 250 points to 6.50% to tackle high inflation post the epidemic.
Your EMIs will not increase
All external benchmark lending rates (EBLR) that are linked to the repo rate will not increase. This will give relief to borrowers as their equated monthly instalments (EMIs) will not increase. The interest rate for home loans linked to the repo rate will stay the same. EMIs for existing home loans will not increase. Auto loans linked to the repo rate will not see a change in their interest rates. For those with personal loans tied to the repo rate, the EMIs will, again, be the same. New Borrowers can expect interest rates to remain consistent with the current levels. The RBI’s decision ensures that borrowing costs do not increase so that spending and investment are encouraged.
#WATCH | RBI Governor Shaktikanta Das says, "Real GDP growth for 2024-25 is projected at 7.2% with Q1 at 7.1%, Q2 at 7.2%, Q3 at 7.3%, and Q4 at 7.2%. Real GDP growth for Q1 of 2025-26 is projected at 7.2%."
(Video source: RBI) pic.twitter.com/KCBKg11Qd0
— ANI (@ANI) August 8, 2024
Downward trajectory for Inflation, But Food Prices A Concern
While announcing its decision, Das had mentioned that inflation broadly was on a declining trajectory. But, food price inflation has remained a concern. The MPC maintained its Consumer Price Index-based inflation projection for FY25 at 4.5%. Q2 FY25 forecast is now 4.4% from 3.8% earlier, Q3 forecast is now 4.7% from 4.6%, and Q4 forecast is now 4.3% from 4.5% earlier. The forecast for Q1FY26 is 4.4%. Das mentioned that the headline inflation was moderating, but the pace was uneven and slow. According to the RBI, food inflation contributed to more than 75% of headline inflation in May and June. Vegetable prices contributed about 35% to inflation in June.
GDP forecast remains largely same for FY25, slightly modified
With no major change done its GDP growth forecast for FY25, the RBI has slightly reduced its Q1 projection from 7.3% TO 7.1%. However, its overall forecast for FY25 remains at 7.2%. “We have slightly moderated the growth projection for Q1 of the current year primarily due to updated information on certain high-frequency indicators which show lower than anticipated corporate profitability, general government expenditure and core industries output,” Das said.
The central bank has done the GDP growth forecasts for Q2 at 7.2%, Q3 at 7.3%, and Q4 at 7.2%. The GDP growth forecast of Q1 FY26 is 7.2%.
When are next RBI MPCs?
The Reserve Bank of India (RBI) is scheduled to hold MPC meetings on October 7-9, December 4-6 and February 5-7, 2025.
