RBI maintains repo rate at 6.5% for the eighth consecutive time and raises FY25 GDP forecast.

Mumbai, — The Reserve Bank of India (RBI) has decided to retain the policy repo rate at 6.5% for the eighth consecutive meeting, indicating a cautious attitude on inflation. This decision came after the RBI’s Monetary Policy Committee (MPC) met for the first time after the Lok Sabha election results were released.

RBI Governor Shaktikanta Das emphasized the central bank’s commitment to keeping inflation within the 4% target range, with a 2% buffer on either side. “When CPI inflation reached at 7.8% in April 2022, the elephant in the room was inflation. The elephant has now gone for a walk and appears to be heading back to the forest. We want the elephant to return to the jungle and stay there for the long term,” Das said, underscoring the importance of remaining vigilant against inflationary forces.

In a significant move, the RBI raised its GDP growth forecast for FY25 to 7.2% from 7% previously. The stock market responded positively to this upward revision, with the Sensex jumping about 1%, or more than 700 points, to 75,814 shortly after the policy announcement. The central bank maintained its FY25 inflation prediction of 4.5%.

The MPC’s decision to maintain the repo rate stable means that all external benchmark lending rates linked to the repo rate would remain unchanged, providing relief to borrowers by preventing their equated monthly installments (EMIs) from rising. However, lenders may boost interest rates on loans tied to the marginal cost of funds-based lending rate (MCLR), if the complete transmission of a 250 basis point increase in the repo rate between May 2022 and February 2023 does not occur.

Adhil Shetty, CEO of Bankbazaar.com, highlighted the implications of the unaltered repo rate. “Inflation is on the decline, and GDP growth looks promising. At this point, the RBI has correctly decided not to relax its guard, but rather to continue striving to ensure that inflation remains consistently and sustainably aligned with its target,” Shetty added. He noted that borrowers may face continued high interest rates on loans, but interest rates on fixed deposits (FDs) are projected to climb, making now an excellent time for depositors.

The RBI’s attitude of ‘removal of accommodation’ remains unchanged, reflecting a cautious approach to economic stability. The central bank’s decision was approved by a 4:2 majority of the six-member MPC, indicating a balanced but cautious attitude in the face of persistent economic problems and uncertainty.

As the RBI navigates current economic conditions, its primary goal remains to support growth while keeping inflation below acceptable levels, so maintaining economic stability and confidence in the financial system.