RBI Keeps Repo Rate Unchanged at 6.5% for Ninth Consecutive Time

New Delhi August 8 2024 : The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has maintained the repo rate at 6.5% for the ninth consecutive time, amid concerns over rising food inflation. The decision was announced during the RBI’s latest monetary policy meeting.

RBI Governor Shaktikanta Das stated that while inflation has been on a declining trend, the committee decided to continue with the monetary policy stance of withdrawing accommodation. The repo rate was last reduced by 40 basis points to 4% in May 2020 during the peak of the Covid-19 pandemic, which had severely impacted the economy, leading to decreased demand, production cuts, and job losses. Since then, the RBI has raised the repo rate by 250 basis points to the current 6.5% to combat post-pandemic inflation.

With the repo rate steady at 6.5%, borrowers tied to external benchmark lending rates (EBLR) linked to the repo rate will see no increase in their equated monthly instalments (EMIs), providing some relief. However, lenders might raise interest rates on loans linked to the marginal cost of fund-based lending rate (MCLR), as the full effect of the 250 basis points increase in the repo rate between May 2022 and February 2023 has not been fully transmitted.

Banks have already revised their repo-linked EBLRs upwards in response to the policy rate hikes since May 2022. Consequently, the 1-year median MCLR of banks increased by 168 basis points from May 2022 to June 2024.

The RBI’s decision reflects a cautious approach to balancing inflation control with economic stability, aiming to mitigate the impact of food inflation while maintaining stable borrowing costs for consumers.