RBI keeps repo rate unchanged at 6.5 pc, raises FY25 GDP estimate

Insight Online News

Mumbai, June 7 : As widely expected by markets and policy-watchers, the Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday decided to keep the policy repo rate unchanged at 6.50 per cent.

With the MPC maintaining status quo on the key lending rate, EMIs for housing, car, business and other loans are also expected to stay unchanged for now.

Repo rate refers to the interest rate at which the RBI lends to commercial banks. A high repo rate means cost of borrowing for banks going up and as a result leads to rise in loan EMIs.

“The Monetary Policy Committee met on 5th, 6th and 7th June 2024. After detailed assessment of the evolving macroeconomic and financial developments and the outlook the MPC decided by a 4:2 majority to keep the policy repo rate unchanged at 6.5%.

“Consequently, the standing deposit facility (SDF) rate remains at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%,” RBI Governor Shaktikanta Das said while announcing the second bi-monthly monetary policy of the current fiscal 2024-25.

He further said, “The MPC also decided by a majority of 4 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.”

The RBI Governor noted that the world has gone through one crisis after another in recent years and the pattern continues but the Indian economy has exhibited strong fundamentals together with financial stability and positive growth momentum.

Stating the rationale for MPC decisions, the RBI Governor said that the inflation-growth balance is moving favourably and growth is holding firm.

“Inflation continues to moderate, mainly driven by the core component which reached its lowest level in the current series in April 2024. The deflation in fuel prices is ongoing. Food inflation, however, remains elevated,” he said.

Retail inflation is one of the most important factors which are considered by RBI while determining the key lending rate.

Amid most high-frequency economic indicators remaining positive, the RBI has raised its real GDP growth forecast for the current financial year 2024-25 to 7.2% from 7% estimated earlier. It pegged GDP growth in the first quarter (Q1) of FY25 at 7.3%, Q2 at 7.2%; Q3 at 7.3%; and Q4 at 7.2% with risks evenly balanced.

Assuming a normal monsoon, CPI inflation for 2024-25 is projected by the central bank at 4.5% with Q1 at 4.9%; Q2 at 3.8%; Q3 at 4.6%; and Q4 at 4.5%.

“While the MPC took note of the disinflation achieved so far without hurting growth, it remains vigilant to any upside risks to inflation, particularly from food inflation, which could possibly derail the path of disinflation. Hence, monetary policy must continue to remain disinflationary and be resolute in its commitment to aligning inflation to the target of 4% on a durable basis,” Das said.

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