RBI maintains repo rate at 6.5%, forecasts 7% GDP growth for FY25

On Thursday, the Reserve Bank of India kept the repo rate unchanged at 6.5% in its Monetary Policy Committee meeting on February 8. This marks the sixth consecutive time that the central bank has maintained the status quo.

“The governor mentioned in the briefing that ongoing uncertainty in food prices is affecting headline inflation, while domestic activities maintain strong momentum.”

Das emphasized the need for monetary policy to remain actively focused on disinflation. Five out of six members supported the rate decision.

The central bank governor stated that global growth is anticipated to remain stable in 2024, albeit with variations among regions. While global trade momentum remains subdued, it is showing indications of improvement and is expected to accelerate in 2024. Inflation has notably eased and is projected to decrease further in 2024.

In its previous Monetary Policy Committee (MPC) meeting on December 8, the central bank maintained the repo rate unchanged for the fifth consecutive time. Governor Shaktikanta Das had revised the growth projection for the current financial year to 7 percent from the earlier 6.5 percent.

The Monetary Policy Committee is tasked with determining the policy repo rate to meet the inflation target while also considering the growth objective.

Although retail inflation in the current financial year has decreased from its peak of 7.44 percent in July 2023, it remains elevated at 5.69 percent in December 2023, albeit within the Reserve Bank’s target range of 4-6 percent.

What the RBI governor said previously

During the previous month, the RBI governor projected a growth rate of 7 percent for the Indian economy in the next financial year, anticipating further easing of inflation.

Das also acknowledged the Centre’s structural reforms in recent years, attributing them to enhancing the medium and long-term growth prospects of the Indian economy.

“The governor noted an improved likelihood of a soft landing, which elicited a positive market response. However, concerns persist regarding geopolitical and climate risks.”

In her interim budget speech to parliament, Finance Minister Nirmala Sitharaman pledged a significant reduction in India’s budget deficit for fiscal year 2024-25. She emphasized the government’s focus on infrastructure development and long-term reforms to stimulate growth.

Impact on Economy

With the repo rate unchanged, loan EMIs are expected to remain unaffected.

 Despite global challenges, the Indian economy’s fundamentals are robust, with inflation well managed. The RBI’s decision to maintain the repo rate at 6.5% extends the previous benefits to homebuyers, ensuring continued affordability in home loan interest rates,” stated Anuj Puri, Chairman of the ANAROCK Group.

“Considering current trends, the housing market remains strong, and stable home loan rates will sustain positive consumer sentiments. This RBI decision provides a significant advantage to homebuyers, particularly amid rising housing prices across the top 7 cities over the past year,” Puri added.

LC Mittal, Director of Motia Group, remarked, “The unchanged repo rate provides a temporary relief to India’s real estate sector, which has faced challenges from increasing home loan costs throughout 2022.”

An unchanged repo rate brings joy to buyers as it presents another opportunity to purchase real estate at favorable prices. Anurag Goel, Director of Goel Ganga Developments, commented, “In February 2023, the MPC raised the repo rate by 25 basis points to 6.50%. Recent data indicates consumer confidence in the housing market, reflecting the robust state of the economy. As we enter the new quarter, home sales continue to surge; the RBI’s decision to maintain current interest rates will play a crucial role in driving growth in the residential sector.

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