Mumbai: The Reserve Bank of India (RBI) has decided to keep the repo rates unchanged at 6.5%. RBI Governor Shaktikanta Das announced this after the Monetary Policy Committee (MPC) meeting of the apex bank. This is the third time in a row that the central bank has paused the key interest rates. The central bank had hiked the key lending rates six times earlier.
Repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. Usually authorities use this key lending rate as a weapon to combat inflation. If inflation rises, then apex banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in reducing inflation.
The central bank takes the contrary position in the event of a fall in inflationary pressures. Repo and reverse repo rates form a part of the liquidity adjustment facility.
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The RBI MPC also kept the SDF unchanged at 6.25%t, and MSF and Bank Rates maintained at 6.75%. The SDF is the lower band of the interest rate corridor, while the MSF is the upper band.
The RBI has also kept its FY24 real GDP projection unchanged at 6.5%. RBI has revised upwards its inflation forecast to 5.4% for the current financial year 2023-24, from 5.1% projected earlier.
India’s retail inflation based on Consumer Price Index (CPI) rose to a three-month high of 4.81% in June. The inflation, however, remains within the RBI’s comfort level of below 6%. The inflation data for July will be released on August 14.
The RBI announces its monetary policy bi-monthly — every two months. Last monetary policy review took place in June 2023, two months ago.
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