RBI Holds Key Interest Rates Steady at 6.5% Amid Growth-Inflation Balance
The Reserve Bank of India (RBI) opted to keep key interest rates unchanged in its latest monetary policy review , maintaining a delicate balance between supporting economic growth and controlling inflation. The Monetary Policy Committee (MPC) decided to retain the repo rate at 6.5%, with a 4:2 majority vote, as announced by RBI Governor Shaktikanta Das.
Addressing the outcome of the meeting, Governor Das remarked on the ongoing global economic uncertainties but highlighted India’s resilience and potential for sustained high growth. "The pattern of world crisis continues, but India is headed for sustained high growth based on its demographics, productivity, and the right government policies in place. However, at the same time, we need to be vigilant in the backdrop of an unsettled global environment", he said.
The decision to hold the rates aligns with the RBI's cautious approach in the face of a complex economic landscape. The repo rate, the interest rate at which the RBI lends short-term funds to banks, remains a critical tool for managing the liquidity and cost of loans within the banking system. This rate directly influences the interest rates that banks charge their customers, impacting both corporate investments and consumer borrowing.
The RBI last adjusted the repo rate in February 2023, raising it to 6.5% as part of a series of hikes totaling 2.5 percentage points between May 2022 and February 2023. These adjustments were aimed at curbing inflation while fostering economic growth. The current stance allows the RBI to support economic momentum without exacerbating inflationary pressures.
India’s annual retail inflation eased to 4.83% in April but remains above the RBI’s medium-term target of 4%. Economists note that the fact that the economy has clocked a robust growth rate of 8.2% for 2023-24 leaves the RBI with headroom to put off an interest rate cut until inflation comes down to its targeted level. This cautious approach underscores the RBI's commitment to maintaining price stability while facilitating sustainable economic expansion.
