Home Banking The RBI MPC maintains the repo rate at 6.5% ,for the seventh consecutive time

The RBI MPC maintains the repo rate at 6.5% ,for the seventh consecutive time

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The Reserve Bank’s Monetary Policy Committee (MPC) is set to announce its decision on the repo rate, affecting borrowing costs for banks and loan interest rates for businesses and individuals. The current repo rate of 6.50% has remained unchanged since April 2023.

Most experts anticipate that the RBI will maintain its repo rate at 6.50% in line with its stance of ‘withdrawal of accommodation’. In the previous announcement on February 8, the MPC upheld the repo rate at 6.5% for the sixth consecutive time. The central bank last raised the repo rate to 6.5% in February 2023 and has maintained it since then.

Governor Shaktikanta Das stated, “Our policy stance revolves around interest rates, the primary tool of monetary policy in the current framework.” He clarified that the ‘withdrawal of accommodation’ stance is due to incomplete transmission of interest rates and inflation persisting above the 4% target.

What can we anticipate from the April MPC meeting?
1. Analysts suggestion

Analysts suggest that the MPC might observe the approaches of key global central banks like the US and UK, which seem to be adopting a cautious stance on interest rate adjustments.

According to a research report from India’s largest lender, State Bank of India (SBI), they advocate maintaining the stance of gradually withdrawing accommodation. The report also notes that central banks in emerging economies often base their rate decisions on the actions of central banks in developed economies.

2. Economic Growth Outlook

Analysts, financial institutions, and market experts foresee a strong expansion in the Indian economy, with growth projections indicating robust performance. Notably, India’s economy surged by an impressive 8.4% in the fourth quarter of 2023, outpacing other major economies. The World Bank’s recent report revised its earlier forecast for India, now projecting a growth rate of 7.5% in 2024, up by 1.2% from previous estimates. Additionally, the report highlights that the growth trajectory in South Asia, primarily propelled by India, is anticipated to reach 6% in 2024.

This positive outlook might lead the RBI to take a prudent approach regarding rate changes to prevent the economy from overheating.

According to Sonal Varma, Managing Director & Chief Economist- India and Asia Ex-Japan at Nomura, the RBI might consider raising its projection from 7% to approximately 7.2%, in line with recent models suggesting an even stronger growth of 7.4%.

3. Managing Inflation

Maintaining inflation within a desirable range is a consistent objective for the RBI, and current forecasts suggest a manageable situation. In February, inflation stood at 5.09% and is projected to decrease to 4.00% in the third quarter before gradually increasing, according to a Reuters poll. Price increases are anticipated to average 4.60% in the current fiscal year.

Soumya Kanti Ghosh, Group Chief Economic Advisor at the State Bank of India, anticipates inflation to remain anchored between 4-5% in the upcoming fiscal year, potentially supported by ongoing deflationary trends in core components.

4. Impact of Monsoon Predictions

The RBI’s policy approach is greatly influenced by the agricultural sector’s prospects, which heavily depend on the monsoon forecast. Skymet’s projection of a regular monsoon season suggests stable agricultural output, which could help mitigate food inflation and boost rural incomes.

5. Crude oil

However, as of that time, Hamas was designated as a terrorist organization by several countries and international organizations, including the United States, the European Union, Canada, and others.

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