RBI Keeps Repo Rate Unchanged at 6.5% as Inflation Concerns Weigh

In its recent monetary policy committee meeting, the Reserve Bank of India (RBI) has chosen to maintain the repo rate at 6.5% for the sixth consecutive time. This decision announced by RBI Governor Shaktikanta Das highlights the central bank's cautious stance amidst concerns surrounding inflationary pressures. The repo rate standing at 6.5% signifies the rate at which the RBI lends to other banks. This decision marks a continuity in the monetary policy trajectory aimed at balancing growth and inflationary risks.

Impact on Economy

With the repo rate unchanged there is likely to be no immediate impact on loan EMIs. This pause in rate adjustments follows a cycle of rate hikes totaling 250 basis points since May 2022, which was halted in April last year. The decision aims to sustain economic momentum while mitigating inflationary pressures.

Reserve Bank of India expects the country's economy to grow by 7% in the fiscal year 2024-2025. This growth is forecasted to be steady throughout the year with the first quarter (Q1) expected to see a growth rate of 7.2% followed by 6.8% in the second quarter (Q2), 7% in the third quarter (Q3) and 6.9% in the fourth quarter (Q4). These projections indicate a consistent pace of expansion with slight variations across different quarters.

Inflation Analysis & Projections

Consumer Price Index (CPI) inflation rose to a four month high of 5.69% in December, primarily driven by elevated prices of essential food items such as pulses, spices, fruits and vegetables. Despite staying within the government's target range of 2-6%, inflation continues to exceed the RBI's 4% target. Inflation remains a concern highlights the importance of taking proactive steps through policy decisions.

For fiscal year 2023-24 RBI anticipated CPI inflation to average at 5.40 percent, with a slight uptick to 5.60 percent for 2024-25. These projections show that the central bank is carefully considering how the economy is changing and what actions need to be taken to keep prices stable and ensure the economy grows steadily.

Final Words

RBI is keeping a close eye on inflation, and by choosing not to change the repo rate, they're being careful in light of the changing economic situation. They're committed to watching inflation closely to keep the overall economy stable and encourage growth. Looking ahead, it's crucial for different policies to work together well and for smart management to help the Indian economy stay strong despite any uncertainties.