RBI Policy: RBI keeps repo rate unchanged at 6.5% for ninth time in row

Announcing the decision, RBI Governor Shaktikanda Das said that inflation broadly has been on a declining trajectory.

The RBI had last cut the repo rate by 40 basis points to 4 per cent in May 2020 when the Covid pandemic raged across the country affecting the entire economy, leading to slowdown in demand, production cuts and job losses. Since then, the RBI has hiked the repo rate by 250 points to 6.50 per cent in order to tackle high inflation level after the epidemic subsided.

What does this mean?

With RBI leaving the repo rate steady at 6.5 per cent, all external benchmark lending rates (EBLR) that are linked to the repo rate will not increase, giving relief to borrowers as their equated monthly instalments (EMIs) will not increase.

However, lenders may raise interest rates on loans that are linked to the marginal cost of fund-based lending rate (MCLR), where the full transmission of a 250 bps hike in the repo rate between May 2022 and February 2023 has not happened.

In response to the 250 bps policy rate hike since May 2022, banks have revised their repo-linked EBLRs upwards. The 1-year median marginal cost of funds-based rate (MCLR) of banks increased to 168 bps during May 2022–June 2024.

How has the Stock Market reacted?

The equity benchmark indices Sensex and Nifty continued to trade lower on Thursday. The NSE Nifty 50 index was down 0.4% at 24,199.9, as of 11:12 a.m IST, and the S&P BSE Sensex had shed 0.38% to 79,161.1. Both indexes were down about 0.3% ahead of the decision. They extended losses to about 0.6% immediately after the policy announcement, before trimming some losses.

Reactions from the industry

Adhil Shetty, the CEO of Bankbazaar.com, said that with inflation remaining above the RBI’s target levels and food prices still on the higher side, along with global uncertainty due to tensions in the Middle East, the Monetary Policy Committee of the apex bank has kept the repo rate unchanged at 6.5% for the ninth consecutive time.

“The average weighted rate on new loans are now at a one-year low of 9.32%. Average weighted rates on new term deposits are also softening and are at 6.46% in the latest data. The data is trending in the right direction, but the governor rightly points out that there’s divergence in these trends. Some central banks are seen softening their policy while others are tightening theirs. Fuel price is trending lower, but food price remains volatile in India,” he said.

Pradeep Aggarwal, the founder and chairman of Signature Global (India) Ltd, said: “The RBI’s decision to keep rates unchanged is on expected lines with an intention to keep inflation under check. While the RBI is focused on reining in inflation within its target limit, the expectation of good monsoon may prompt the apex bank to lower interest rates in the subsequent months thereby further propelling real estate sales momentum and also providing an opportunity to perspective homebuyers to enter in the market.”