New Delhi

The Reserve Bank of India (RBI) has announced its decision to keep the benchmark repo rate steady at 6.5 per cent for the tenth consecutive time, a move that underlines the country's economic resilience despite shifting global trends. This decision comes in stark contrast to the US Federal Reserve's recent interest rate cuts aimed at stimulating a slowing economy.

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India's steadfast approach reflects a commitment to maintaining economic stability in the face of persistent food inflation, which significantly impacts household budgets. With food prices contributing approximately 70 per cent to overall retail inflation, the RBI's focus on controlling these pressures is evident. The bank has reiterated its dedication to monitoring inflation closely, particularly as it continues to present challenges for policymakers.

On RBI maintaining repo rate to 6.5 per cent, Bankbazaar Co-founder Adhil Shetty stated that “The RBI has kept the repo rate unchanged at 6.5 per cent, which is good news for inflation control. The repo rate has now remained unchanged at 6.5 per cent for nine consecutive Monetary Policy Committee (MPC) meetings, after a cumulative hike of 250 basis points since May 2022. The RBI has shifted its stance to neutral. This means it is ready to act either way, depending on how things unfold. If inflation stays low, we may see rate cuts in the future. But for now, it's a wait-and-watch situation. Loan holders may need to wait longer for rate cuts, possibly until December. If inflation stays under control, a rate cut could come. Until then, EMIs will remain at current levels.”

Shetty further elaborated that, “Globally, things are looking resilient. Despite challenges like high oil prices and supply chain disruptions, economies are managing well. India's outlook is steady compared to other nations, thanks to strong fundamentals. The policy easing will help start-ups and pre-IPO companies.”

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“India’s GDP grew by 6.7 per cent, which is promising. Private consumption and investment have picked up, showing that people and businesses are spending again. Government spending, however, has decreased, putting more pressure on the private sector to drive growth.”

India’s economic fundamentals remain robust

The decision to hold rates steady, signals confidence in India's economic fundamentals, which remain robust despite global uncertainties. While the US has adopted a more accommodative monetary policy, India's choice to maintain higher interest rates positions it as an attractive destination for global investors seeking better returns. This could lead to a strengthening of the Indian rupee as capital flows into the economy increase.

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India's economic outlook appears promising, with a reported GDP growth rate of 6.7 per cent. This growth is bolstered by increased private consumption and investment, indicating that both consumers and businesses are regaining confidence and spending once again. However, a decline in government spending has placed greater responsibility on the private sector to sustain this momentum.

While the RBI’s decision is seen as positive news for inflation control, it also suggests that loan holders may have to wait longer for potential rate cuts, possibly until December. The RBI has shifted its stance to neutral, indicating a readiness to adjust rates based on future economic developments. If inflation remains under control, there may be room for future cuts; however, for now, borrowers will need to adapt to current levels of equated monthly installments (EMIs).

Hence, by maintaining the repo rate at 6.5 per cent, the RBI not only aims to control inflation but also reinforces India's position as a resilient player in the global economy. As the situation evolves, stakeholders will be keenly observing future decisions of the Reserve Bank of India.