RBI keeps repo rate unchanged at 6.5%

Repo rate refers to the interest rate at which the RBI lends to commercial banks. A high repo rate means cost of borrowing for commercial banks going up and as a result leads to rise in loan EMIs.

The six-member rate-setting panel led by RBI Governor Shaktikanta Das took the decision on repo rate unanimously based on the prevailing economic situation and outlook.

"The MPC also decided by a majority of 5 out of 6 members to remain focussed on withdrawal of accomodation to ensure that inflation progressively align with the target while supporting growth," said RBI Governor Das.

After raising the repo rate cumulatively by 250 basis points (one basis point is equal to 0.01%) to 6.5% between May 2022 and February this year to tame rising inflation, the MPC had hit the pause button on the benchmark lending rate in April.

Showing signs of moderation, the Consumer price index (CPI) based inflation came in at an 18 month low of 4.7% in April, 2023. It is currently in the RBI's target range of 2-6%.

The MPC is tasked to keep inflation in check and maintain price stability.

It may be noted that the consistent increase in the policy rep rate has not translated into lower credit offtake which continues to grow at a robust pace driven by steady demand.

Aditi Gupta, Economist at Bank of Baroda, in a report last week said that overall credit demand in the economy would remain robust at 12-14% in FY24 following a growth of 15% in FY23.

"The moderation can be attributed to a high base as well as a slowdown in GDP growth from 7.2% in FY23 to 6-6.5% in FY24," she said.

Beating market expectations, the Indian economy grew at a healthy 7.2% in FY23 with a major push coming from the January-March quarter (Q4) when the GDP accelerated to 6.1% year-on-year.