RBI Keeps Repo Rate Unchanged for the 10th Time: No Increase in Loan Costs or EMIs

The Reserve Bank of India (RBI) has once again decided to maintain the repo rate at 6.5%, marking the 10th consecutive time that interest rates have remained unchanged. This decision means that loans will not become more expensive, and borrowers will not face an increase in their Equated Monthly Installments (EMIs). The last hike in the repo rate was in February 2023, when it was raised by 0.25% to the current rate of 6.5%.

The decision was announced by RBI Governor Shaktikanta Das following the conclusion of the Monetary Policy Committee (MPC) meeting, which commenced on October 7, 2024. These meetings take place every two months, and the last one, in August, also resulted in no changes to the interest rates.

A Closer Look at RBI’s Interest Rate History:

Since the onset of the COVID-19 pandemic, the RBI has made significant adjustments to its interest rates. Between March 27, 2020, and October 9, 2020, the central bank reduced the repo rate by 0.40% in two instances to support the economy during the pandemic. Since then, the RBI has raised rates five times across ten meetings while leaving them unchanged on four occasions. The repo rate, which stood at 5.15% before the pandemic in February 2020, now remains steady at 6.5%.

Governor Das emphasized that the RBI’s inflation target continues to be set at 4%. However, he cautioned that inflation figures for September could show a slight uptick due to seasonal factors. Despite this, the current macroeconomic indicators remain stable, with projected GDP growth for the 2025 fiscal year expected to be around 7.2%.

According to Dr. V. K. Vijaykumar, Chief Investment Strategist at Geojit Financial Services, the RBI may consider a 0.50% rate cut by March 2025. This speculation arises from the fact that the RBI has not altered the interest rates since February 2023. With the repo rate still at 6.5%, analysts believe that the central bank could adopt a softer monetary stance, similar to global trends.

Vijay Bharadia, Founder of Wallfort Financial Services Ltd, echoed this sentiment, suggesting that a rate cut would be a bold move that could encourage other central banks, including the RBI, to consider a more accommodative monetary policy.

Global Influence: U.S. Federal Reserve Rate Cut:

On September 18, 2024, the U.S. Federal Reserve reduced its interest rates by 0.5%—its first cut in four years—bringing the rates to a range of 4.75% to 5.25%. Given that the U.S. is the world’s largest economy, decisions made by its central bank often have a ripple effect on global economies, including India.

Central banks, including the RBI, use policy rates as a powerful tool to control inflation. When inflation is high, raising the policy rate helps reduce the money supply in the economy by making loans more expensive, which in turn lowers demand and helps cool down inflation. Conversely, when the economy is struggling, central banks lower policy rates to stimulate growth by making borrowing cheaper, thus increasing the flow of money in the economy.

Current Inflation Trends in India:

1.Retail Inflation (August 2024): Retail inflation in August stood at 5.08%, up from 3.65% in July. The rise was largely driven by higher vegetable prices. The RBI’s acceptable inflation range is between 2% and 6%.

2.Wholesale Inflation (June 2024): Wholesale inflation reached 3.36% in June, its highest level in 16 months, according to data released in July. Food inflation surged to 8.68%, compared to 7.40% in May. However, by August, wholesale inflation had eased to 1.31%, its lowest level in four months, as daily essentials became more affordable.

How Inflation Affects Purchasing Power:

Inflation directly impacts purchasing power. For instance, if inflation is at 7%, the value of ₹100 earned will effectively reduce to ₹93. Therefore, it is essential to account for inflation when making investment decisions to preserve the value of money over time.

In conclusion, the RBI’s decision to maintain the repo rate at 6.5% provides much-needed stability for borrowers, ensuring that loans remain affordable and EMIs do not increase. As inflation remains a key concern, the central bank’s approach to managing interest rates will continue to play a crucial role in sustaining economic growth and controlling price levels.

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