RBI applies brakes on repo rate hike, keeps it unchanged at 6.5%

RBI keeps repo rate unchanged:On Thursday, India's central bank, the Reserve Bank of India (RBI) finally applied the brakes on increasing the repo rate by keeping it unchanged at 6.5 per cent. The pause came after the central bank had announced six hikes since May last year to a cumulative 250 basis points.

Presiding over the RBI Monetary Policy Committee (MPC) meeting, RBI Governor Shaktikanta Das said although the repo rate was unchanged, it could be altered should the situation warrant so.

“While we have kept the policy rate unchanged, this decision was taken based on our assessment of the macroeconomic and financial conditions with reference to information available up to today,” Das told the reporters after the meeting.

“Overall inflation is above the target and the current policy rate still remains accommodative. It is now necessary to evaluate the action of past rate hikes."

India's central bank is wary of the rising uncertainty in international markets and inflation pressures. It has projected the inflation to stand at 5.1 per cent and 5.4 per cent in Q1, Q2 respectively.

Notably, worried due to the global indicators and increasing inflation, the MPC last year in an unscheduled meeting in May raised rates for the first time by 40 basis points.

The trend continued in June, August and September when the committee increased repo rates by a combined 150 points. The last two hikescame in December 2022 and February 2023 with MPC hiking the rates by 35 basis points and 25 basis points respectively.

What is repo rate?

When commercial banks loan by selling their securities to the central bank, the RBI charges them an interest rate. This interest rate is called the repo rate in the monetary policy. Lower interest rates make it easier for individuals and businesses to borrow money to invest in new economic activities.

India Inc cheers RBI, terms decision‘prudent’ move

Meanwhile,Indian industry cheered RBI’s stance of keeping the key interest rate unchanged, terming it a "prudent" move in the wake of headwinds emanating from global banking stress. Theindustry honchos said the move will improve business sentiments by containing the rise in borrowing costs.

Industry bodies cautioned that any further hike in the benchmark repo rate at this juncture would have affected India's economic growth even as domestic demand impulses remain healthy.

"The industry body agrees with the central bank's observation that the lagged impact of the past rate hikes should be allowed to percolate into the system, and not stifle demand by further rate hikes," said CII president Sanjiv Bajaj.

The market sentiment was also buoyed by the RBI announcement and theSensex closed up by 143 points at 59,832, while the Nifty settled at 17,599at the end of the day's trade.

(With inputs from agencies)

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