The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) has decided to keep the key policy repo rate unchanged at 6.5 percent. This marks the eighth consecutive time the central bank has held the rate steady, extending a pause that began in February 2023. The announcement was made by RBI Governor Shaktikanta Das on Friday, following the three-day bimonthly MPC meeting.
Unchanged Rates and the Stance on Inflation
The MPC's decision was unanimous, with all six members voting to maintain the current repo rate. Furthermore, the committee decided to persist with its policy stance of 'withdrawal of accommodation' to ensure inflation aligns progressively with the target while supporting economic growth. Governor Das emphasized that the domestic economy is exhibiting resilience, but the battle against inflation is not yet over.
He pointed out that while headline inflation has moderated, food price volatility remains a significant concern. The RBI has retained its inflation projection for the fiscal year 2024-25 at 4.5 percent, with risks evenly balanced. The central bank's unwavering focus remains on achieving the 4 percent inflation target on a durable basis.
Implications for Borrowers and the Economy
For millions of common citizens, especially those with home, car, or personal loans, this decision means no immediate reduction in their Equated Monthly Installments (EMIs). Banks and housing finance companies are unlikely to cut their lending rates until the RBI initiates a reduction in the repo rate. The pause signals that borrowers must wait longer for potential relief from high-interest burdens.
On the growth front, the RBI has expressed optimism. Governor Das noted strong momentum in domestic economic activity, driven by robust investment demand and a gradual improvement in rural consumption. The GDP growth forecast for FY25 has been maintained at 7 percent. The governor also highlighted the strength of India's external sector, with foreign exchange reserves providing a solid buffer against global spillovers.
What's Next for Loan Rates?
The extended pause indicates that the RBI is in a wait-and-watch mode, prioritizing inflation control over growth stimulation. Financial markets and analysts will now scrutinize incoming data on inflation, monsoon progress, and global geopolitical developments. The timing of the first repo rate cut is now widely expected to be pushed further into the future, possibly towards the end of 2024 or early 2025, contingent on a sustained decline in inflation.
For now, the message from Mint Road is clear: stability is paramount. The central bank is committed to anchoring inflation expectations, which it believes is a prerequisite for sustainable growth in the long run. Home loan seekers and existing borrowers hoping for lower interest costs will need to exercise patience as the RBI navigates a complex global economic landscape.
