RBI keeps repo rate unchanged at 6.5 pc to maintain balance between growth and inflation

The RBI left the key interest rates unchanged in its monetary policy review on Friday as it continues to maintain a balance between economic growth and keeping inflation in check.

The RBI’s Monetary Policy Committee (MPC) meeting decided to stick to the current 6.5 per cent repo rate with a 4:2 majority vote, RBI Governor Shaktikanta Das said after the meeting.

The RBI Governor said, “The pattern of world crisis continues, but India is headed for a sustained high growth based on its demographics, productivity and the right government policies in place. However, at the same time, we need to be vigilant in the backdrop of an unsettled global environment.”

The RBI had last changed rates in February 2023, when the repo rate was hiked to 6.5 per cent. The RBI raised rates by 2.5 per cent between May 2022 and February 2023 after which they have been kept on hold to support economic growth despite inflationary pressures in the past.

The repo rate is the interest rate at which the RBI gives short term loans to banks to enable them to meet their liquidity requirements. This in turn has an impact on the cost of loans that the banks extend to the corporate entities and consumers.

A cut in interest rate results in more investment and consumption expenditure which spurs economic growth. However, the increased expenditure also pushes up the inflation rate as the aggregate demand for goods and services goes up.

The country’s annual retail inflation eased to 4.83 per cent in April, but is still above the RBI’s medium-term target rate of 4 per cent. The fact that the economy has clocked a robust growth rate of 8.2 per cent for 2023-24 leaves the RBI with headroom to put off an interest rate cut until inflation comes down to its targeted level, according to economists.

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