No change in interest rates for the tenth time, loans remain costly as RBI maintains status quo on repo rate at 6.5%
The Reserve Bank of India (RBI) has decided to keep the repo rate unchanged for the tenth consecutive time in its latest Monetary Policy Committee (MPC) meeting. RBI Governor Shaktikanta Das announced that the central bank will hold the repo rate steady at 6.5%, meaning no immediate relief in loan installments for borrowers. The repo rate is the rate at which the RBI lends to banks, which affects loan interest rates for home loans, car loans, and personal loans.
RBI Maintains Repo Rate at 6.5%
The RBI’s MPC, which held its three-day meeting, decided by majority vote to maintain the repo rate at 6.5%, with five out of six members in favor of the decision. The repo rate has remained unchanged since February 2023, when it was last increased by 0.25%. With the rates staying the same, borrowers will not see any reduction in their equated monthly installments (EMIs) on loans.
This decision was expected by many economists and financial experts, given that retail inflation continues to be a concern. Despite global fluctuations, the central bank’s stance has been to control inflation and support economic growth, which has seen steady momentum in recent times.
Inflation Under Control but Risks Remain
RBI Governor Das emphasized that the central bank has successfully kept inflation under control, even amid global economic uncertainties. Food inflation is expected to decline due to favorable monsoon conditions and sufficient buffer stocks. However, there are still risks on the horizon, especially with rising crude oil prices due to the ongoing West Asia conflict, which could drive up commodity costs and fuel inflation.
The RBI has set a retail inflation target of 4% (with a 2% variation up or down) and is closely monitoring the situation. Inflation is expected to rise temporarily in September due to the base effect and food prices. The RBI will continue to watch the data before making any further changes in monetary policy.
Economic Growth Projections Remain Strong
Despite concerns about inflation, India’s economic growth continues to show positive signs. RBI estimates that the GDP growth rate for the current financial year will be around 7.2%, which is a strong figure amid global economic uncertainties. Investment’s contribution to GDP has reached its highest level since 2012-13, and the manufacturing sector is seeing a resurgence, thanks to increased domestic demand and government initiatives.
The governor also noted that the economy’s foundations remain robust, with strong activity in multiple sectors. Retail inflation for 2024-25 is expected to settle at 4.5%, assuming a normal monsoon and stable food prices.
No Immediate Relief on Loan Rates
For now, borrowers will have to continue managing their existing loan EMIs, as the unchanged repo rate means no reduction in borrowing costs. Experts suggest that there is still some hope for a rate cut in the December MPC meeting, depending on inflationary trends and global market conditions.
While central banks in other countries, such as the U.S. Federal Reserve, have opted to reduce benchmark rates, the RBI has taken a more cautious approach to ensure stability in the economy. The decision to hold the repo rate also reflects concerns over potential risks from the West Asia crisis and its impact on crude oil and commodities.
The government had recently reconstituted the MPC, with three new external members joining the committee. This was the first MPC meeting since their appointment, and the decision to keep the rates steady reflects a careful balancing of inflation control and economic growth.
