RBI retains repo at 6.5% for eighth consecutive time

GDP projection for FY25 raised marginally to 7.2% from 7% it had projected earlier

Amit Chettupuzha

MUMBAI: The Reserve Bank of India’s Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 6.5 per cent for the eighth time in a row today (June 07).

Repo rate is the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks. Repo’s relevance has increased since external benchmark lending rate (EBLR) was introduced in 2019, wherein all retail floating rate loans were mandated to be linked to EBLR.

The decision to retain repo rate was taken at the MPC meeting that concluded today (June 07), with four favouring the decision whereas two wanted to cut the rate this time.

Shares gain

This MPC meeting gains significance being the first one after the Lok Sabha election results were declared, when serious confabulations are on in the backdrop to form the ministry.

Addressing a press conference, RBI Governor Shaktikanta Das revised the GDP (gross domestic growth) projection to 7.2 per cent for FY 25, raising marginally from 7 per cent that it had projected earlier.

The stock markets cheered the RBI’s revised projection of GDP to 7.2 per cent with the shares in general displayed a trend of euphoria.

Sensex gains 1,500 points and Nifty gains 442 points while BSE Midcap index up nearly 1 per cent and Smallcap index up nearly 2 per cent.

In the previous MPC meeting that took place in April too, the RBI had kept the repo rate unchanged at 6.5 per cent and maintained the policy stance of ‘withdrawal of accommodation’ in the monetary policy.

Unlike a 4:1 mandate this time, the decision in the April meeting was endorsed in the ratio of 5:1 by the six-member MPC, which is headed by the RBI Governor, Shaktihanta Das.

RBI is holding the MPC meeting once every two months primarily to exercise the Central Government mandate to ensure CPI inflation at 4 per cent with a plus or minus margin of two per cent.

Referring to a decision by MPC more than two years ago, RBI Governor Shaktikanta Das, said, “Two years ago, around this time, when CPI inflation had peaked at 7.8 per cent in April 2022, the elephant in the room was inflation. The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis.”

Inflation declining

Inflation is on a declining trajectory, and GDP growth is optimistic. An industry source stated, “At this stage, the RBI has wisely decided not to lower its guard but to continue working towards ensuring that inflation aligns durably and sustainably with its target.”

Borrowers may face continued high interest rates on loans. Since the repo rate directly influences lending rates, an unchanged rate means existing loans remain benchmarked to an elevated repo rate at 6.50.

As the Repo rate remains at an elevated level and deposits continue to be costly, the borrowing costs could increase marginally from the current levels, according to some industry sources.