RBI Monetary Policy Meeting June 2024: The Reserve Bank of India’s Monetary Policy Committee (MPC), which had kickstarted its meeting on Wednesday, has kept the repo rate unchanged at 6.5 per cent for the eight consecutive time. This is the first time the MPC met after the results of the Lok Sabha election were declared.
Addressing a press conference, RBI Governor Shaktikanta Das revised the GDP (gross domestic growth) projection to 7.2 per cent for FY 25, up from 7 per cent that it had expected earlier.
The stock market cheered the hike in GDP forecast with the Sensex rising nearly one per cent, or over 700 points, to the 75,814 level soon after the policy announcement.
The government has mandated the RBI to ensure CPI inflation at 4 per cent with a margin of 2 per cent on either side.
In April, the Central Bank had decided to keep the repo rate unchanged at 6.5 per cent and maintain the policy stance of ‘withdrawal of accommodation’ in the monetary policy. Both the decisions were taken in a majority 5:1 voting by the six-member MPC, headed by Das.
With the RBI keeping the repo rate steady, all external benchmark lending rates that are linked to the repo rate will not rise, providing a relief to borrowers as their equated monthly instalments (EMIs) will not increase.
However, lenders may raise interest rates on loans that are linked to the marginal cost of fund-based lending rate, where the full transmission of a 250 bps hike in the repo rate between May 2022 and February 2023 has not happened.
On why the rates were kept unchanged, RBI Governor Shaktikanta Das, in April, had said that as the uncertainties in food prices continue to pose challenges, the MPC remained vigilant to the upside risks to inflation that might derail the path of disinflation. “Two years ago, around this time, when CPI inflation had peaked at 7.8 per cent in April 2022, the elephant in the room was inflation. The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis,” the Governor had added.
Reactions from the industry
Reacting to the move, an expert said that inflation is on a declining trajectory, and GDP growth is optimistic. “At this stage, the RBI has wisely decided not to lower its guard but to continue working towards ensuring that inflation aligns durably and sustainably with its target.”
He added: “Borrowers may face continued high interest rates on loans. Since the repo rate directly influences lending rates, an unchanged rate means existing loans remain benchmarked to an elevated repo rate at 6.50 with the possibility of new loans being offered with lower spreads than older loans. As the wait for rate cuts continues, borrowing costs are likely to increase. However, interest rates on fixed deposits (FDs) are also expected to rise, with banks offering competitive rates to attract more depositors. This is the best time to monitor rates as banks may offer higher interest rates on FDs to attract more deposits, as they try to balance their own lending and deposit rates.”
Governor’s Statement: June 7, 2024 , Monetary Policy Statement, 2024-25 Resolution of the Monetary Policy Committee (MPC) June 5 to 7, 2024
Source from: https://indianexpress.com/article/business/economy/rbi-repo-rate-unchanged-9377359/