Signalling an accommodative stance, the Reserve Bank of India (RBI) today announced to hold the key repo rate unchanged at 6.5 percent for the 8th time in a row.
Addressing a news conference, RBI Governor Shaktikanta Das also announced the revision of the Gross Domestic Product (GDP) growth projection to 7.2 percent for the current financial year 2024-25, up from 7 percent estimated earlier.
The domestic stock market rose on these positive clues from the country’s central bank.
In April, the RBI decided to keep the repo rate unchanged at 6.5 percent and maintain the policy stance of ‘withdrawal of accommodation’ in the monetary policy.
With the RBI keeping the repo rate steady, the external benchmark lending rates linked to it will also hold, thus providing succour to borrowers as their equated monthly installments (EMIs) will not be impacted.
However, lenders may raise interest rates on loans linked to the marginal cost of fund-based lending rate, where the full transmission of a 250 bps hike in the repo rate between May 2022 and February 2023 has not happened.
“Two years ago, around this time, when CPI (consumer price index) inflation had peaked at 7.8 percent in April 2022, the elephant in the room was inflation. The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis,” the Governor said in April.
Since repo rate directly influences lending rates, an unchanged rate means existing loans remain benchmarked to an elevated repo rate at 6.50 percent with the possibility of new loans being offered with lower spreads than older loans.