RBI holds repo rate: The Reserve Bank of India (RBI) has announced that it would keep the repo rate, the interest rate at which it lends to commercial banks, unchanged at 6.5%. This decision came after six consecutive hikes since May 2021, totalling 250 basis points, and was made at the RBI Monetary Policy Committee meeting. The RBI Governor, Shaktikanta Das, stated that the decision to keep the repo rate unchanged was based on the macroeconomic and financial conditions and that the rate could be altered if the situation warranted it.
Projected Inflation
The RBI is wary of rising inflation pressures and uncertainty in international markets. It has projected inflation to be at 5.1% and 5.4% in the first and second quarters of this year, respectively. Last year, the MPC raised rates for the first time in May, by 40 basis points in an unscheduled meeting due to global indicators and increasing inflation.
The committee continued to raise repo rates in June, August, and September, with a combined increase of 150 basis points. In December 2022 and February 2023, the last two hikes were made by 35 basis points and 25 basis points, respectively.
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Lower interest rates make it easier for individuals and businesses to borrow money for investment in new economic activities. Industry bodies welcomed the RBI’s decision to keep the interest rate unchanged, calling it a “prudent” move in the face of global banking stress. The decision is expected to improve business sentiment by limiting the rise in borrowing costs.
India’s economic growth
Industry leaders cautioned that any further increase in the benchmark RBI repo rate at this time would have an adverse effect on India’s economic growth, even as domestic demand remained strong. The Confederation of Indian Industry (CII) president, Sanjiv Bajaj, agreed with the central bank’s observation that the effects of past rate hikes should be allowed to percolate into the system and not stifle demand by further rate hikes.
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The Sensex closed up by 143 points at 59,832, while the Nifty settled at 17,599, reflecting a positive market sentiment following the RBI’s announcement. The decision of RBI to keep the repo rate unchanged indicates its cautious approach to balancing the risks of rising inflation and global uncertainty with the need to maintain economic growth.
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