The Reserve Bank of India’s Monetary Policy Committee on Friday decided to keep the repo rate unchanged at 6.50% for the fifth consecutive time.
The repo rate is the interest rate at which the central bank lends money to commercial banks. The Monetary Policy Committee decides on changes to it every two months.
The increase in repo rates was paused in April after six consecutive rate hikes aggregating to 250 basis points since May 2022. A basis point is one hundredth of 1 percentage point. Basis points are used to describe the percentage change in the value of a financial instrument.
The central bank’s Governor Shaktikanta Das said that the six-member committee’s decision to keep the rate unchanged was unanimous. He added that the committee will keep an eye on inflation and is committed to aligning inflation to the targeted level.
The Consumer Price-based Inflation fell by about two percentage points since the committee’s last meeting in October to 4.9% because of fall in prices of certain vegetables and deflation in fuel prices, Das said.
The Centre has mandated the Reserve Bank to keep Consumer Price-based Inflation at 4%, with a margin of 2% above and below that mark.
Das said that uncertainties in food prices, among other factors, are likely to lead to a surge in inflation in November and December.
“Kharif harvest arrivals and progress in rabi sowing together with El Niño weather conditions need to be monitored,” Das said. “Adequate buffer stocks for cereals and a sharp moderation in international food prices, along with proactive supply side interventions by the government may keep these food price pressures under check. Crude oil prices may remain volatile.”
Therefore, the committee has projected Consumer Price-based Inflation to be 5.4% for the financial year 2023-’24.
Central banks usually increase key lending rates amid high inflation in economies. Higher key lending rates translate to high interest on loans disbursed by commercial banks. This in turn keeps a check on discretionary spending by consumers which is expected to help curb price rise due to high inflation.
The central bank governor raised India’s growth projection to 7.0% for the financial year 2023-’24, up from 6.5% forecast in October.
However, Das cautioned that headwinds from the geopolitical turmoil, volatility in international financial markets and geo-economic fragmentation pose risks to the outlook.