RBI MPC Highlights: RBI Keeps Repo Rate Unchanged At 6.5%; To Take A Call On Policy Action After Inflation Reaches 4% Durably - News18 (2024)

As anticipated, the Indian central bank maintained its benchmark interest rate, focusing on inflation in the face of ambiguous policy following an unexpected election outcome. This is the eighth straight halt in the past year. Since the April monetary policy in 2023, the RBI has maintained the repo rate at 6.5%. The benchmark interest rate was last adjusted by the RBI in February 2023.

The RBI increased its GDP growth prediction for FY25 from 7% to 7.2% due to better demand conditions in both rural and urban areas, which were supported by the monsoon forecast. Thus far in 2024–2025, the domestic economy has remained resilient. The increasing level of domestic demand is driving the growth of manufacturing activities.

The market will view an increase in GDP trajectory and maintenance of the 4.5% inflation prediction for FY25 as good signs. Stable interest rates are expected to benefit banking, finance, and consumer durables, but they would have less of an impact on utilities, healthcare, and technology.

The outcome of the RBI’s monetary policy for June’24 was broadly as per market expectations, except for the fact that the decision of the rate-setting panel was taken with a majority of 4:2. The RBI seemed to be very confident that the growth momentum of the economy will continue and has accordingly revised the real GDP growth for FY25 from earlier 7% to 7.2%. The reason cited for maintaining the repo rate at 6.5% and holding on to the stance of withdrawal of accommodation was due to ongoing food inflation concerns and global uncertainties springing up negative surprises.

The RBI MPC left its inflation forecast for this fiscal year unchanged at 4.5 percent, expressing its commitment to bring the inflation level back to the target of 4% on a durable basis. The RBI governor also assured and emphasised the importance of maintaining an orderly liquidity position in the financial market, and its approach will be nimble and flexible for the same. We expect the RBI to continue to focus on fine-tuning liquidity conditions through VRR/VRRR auctions in order to align the overnight rates with the repo rate. However, larger-than-expected FPI flows could see the use of durable instruments.

The MPC meeting outcome was cheered by the equity market, but the debt market didn’t react much to the MPC meeting announcement. The market would perhaps be more keen to look for the Union Budget announcement on the government’s fiscal roadmap going forward. Insurance companies with a greater focus on fixed-income portfolios in their life funds would not have been significantly impacted by this MPC decision. The equity portfolio of the insurance companies has made some positive MTM gains, though.

The RBI’s monetary policy committee has kept the repo rate unchanged at 6.5 per cent. When it comes to considering its impact on inflation and new borrowers, it can be said that by adjusting liquidity measures and interest rates, the country’s central bank aims to curb inflation while ensuring favorable conditions for new borrowers.

Much adjusted or lowered interest rates can lead to borrowing and investment, potentially bolstering economic growth, at the same time risking inflationary pressures. Alternately, while higher rates may dampen the borrower community’s sentiments, it can help rein in inflation. Thus, it can be said that the current MPC’s decision is set to have substantial implications for both current inflation dynamics and the expense of new borrowers in the radar.

However, potential home buyers should be cautious. The unchanged repo rate, while beneficial in the short term, does not signal lower interest rates in the near future. Banks are likely to maintain their current lending rates, keeping home loans costlier compared to pre-pandemic levels. This situation might particularly impact first-time home buyers and those seeking affordable housing, as they are more sensitive to interest rate fluctuations.

Atul Monga, CEO and Co-Founder, Basic Home loan

Banks should invest adequately on IT and they are. It is for the banks to asses. RBI does not prescribe how they should expend.

Efforts are on to reduce downtime in UPI: RBI DG Rabi Sankar

There is no problem from UPI or NPCI end, problem arises from banks end: RBI Governor. We are dealing with that.

Sanjeev Agrawal, President, PHD Chamber of Commerce and Industry, said that we are expecting inflation trajectory to stabilise within the target band of RBI and thereafter softening of the policy stance of the monetary policy.

Favourable inflation trajectory and resilient economic growth will create scope for a repo rate cut in the coming times. We expect a repo rate cut as and when headline inflation softens around 4.5% and stabilising between 4 to 4.5%, says industry body PHDCCI.

The continuously accelerating economic growth and softening inflation trajectory, coupled with the status quo in repo rate will lead to high GDP growth in FY2025, said Mr. Agrawal.

A boost in the kharif production backed by forecast of above-normal southwest monsoon, stable rupee and RBI’s commitment to maintaining stability and orderliness in all segments of finance markets and institutions will be favourable for the growth of trade and industry, said Mr Agrawal.

It is highly appreciable that RBI is strategizing to become a model central bank for the global south in the coming times, said Mr Agrawal.

As FY2023-24 GDP was marked with a significantly high growth of 8.2%, the current financial year is also expected to give such surprises on the back of robust economic activity, recovering private consumption, softening inflation and continued traction in investment activity, said Mr Agrawal, President, PHDCCI.

RBI Patra: We will go on refining our intervention toolkit and intervene as and we feel.

RBI Governor: We are very clear that RBI is there in the forward market and we are there. Lets wait for the toolkit for intervention.