MUMBAI, 9 Oct (Commoditiescontrol): The Reserve Bank of India (RBI) on Wednesday maintained the repo rate at 6.5% for the tenth consecutive time, signaling a steady approach in its policy direction. However, the central bank's Monetary Policy Committee (MPC) adjusted its stance from a ‘withdrawal of accommodation’ to a ‘neutral’ stance, indicating a more balanced approach to future rate changes.
This decision means that lending rates tied to the repo rate, such as those for external benchmark-linked loans, will remain unchanged, offering relief to borrowers as their equated monthly installments (EMIs) stay stable. However, for loans linked to the Marginal Cost of Fund-based Lending Rate (MCLR), there could be upward adjustments, as banks have not yet fully passed on the 250 basis points (bps) hike in the repo rate implemented between May 2022 and February 2023.
Since the rate hikes began in May 2022, banks have raised their repo-linked external benchmark-based lending rates (EBLRs) by the same 250 bps. Meanwhile, the one-year median MCLR of banks increased by 170 bps from May 2022 to August 2024.
In its August meeting, the MPC had expressed concerns over persistently high food inflation, which could pose risks to the disinflation trajectory. The consumer price index (CPI) inflation rose to 5.1% in June from 4.8% in May, driven by food inflation, which climbed to 8.4% in June from 7.9% the previous month. “The food component of retail inflation remains stubborn, contributing around 70% of overall retail inflation,” noted RBI Governor Shaktikanta Das.
The government recently restructured the MPC, appointing three new external members: Ram Singh, Director of the Delhi School of Economics; Saugata Bhattacharya, Economist; and Nagesh Kumar, Director and Chief Executive of the Institute for Studies in Industrial Development.
Reacting to the RBI’s decision, Nish Bhatt, Founder & CEO, Millwood Kane International said, "The RBI MPC's decision to keep rates unchanged was on expected lines, the change in policy stance from 'Withdrawal of Accommodative measures' to 'Neutral' is a big positive. While it may not mean a direct rate cut from the next policy, it gives the central bank the flexibility to act according to evolving economic development and data".
(By Commoditiescontrol Bureau; +91 98201 30172)