RBI keeps repo rate intact amid fears of inflation, provides relief to borrowers

In a much-anticipated move, the Reserve Bank of India's six-member Monetary Policy Committee has kept the repo rate unchanged at 6.5 per cent for the ninth time in a row, citing risks from higher food inflation. It also retained the stance on withdrawal of accommodation.

Making the announcement, Reserve Bank of India Governor Shaktikanta Das said that inflation also remained broadly on a falling trajectory. Repo rate was last cut by 40 basis points to 4 per cent in May 2020 in view of the economic disruption triggered by the COVID-19 pandemic that had brought demand to a near standstill, forced production cuts, and laid-off millions of jobs. Since then, the central bank has hiked the repo rate by 250 basis points to 6.50 per cent at present to fight high inflation levels after the epidemic subsided.

The resolution to retain the status quo on the repo rate at 6.5 per cent means all the external benchmark lending rates (EBLR) linked to the repo rate will continue to remain unchanged, bringing relief to borrowers as their equated monthly instalments (EMIs) will not increase. It is in response to this cumulative 250 bps policy rate increase that banks have aligned their repo-linked EBLRs upwards since May 2022. Further, the 1-year median marginal cost of funds-based rate (MCLR) of banks increased to 168 bps from May 2022–June 2024.