MUMBAI: The Reserve Bank of India’s (RBI) 6.5 per cent repo rate, unchanged since February 2023, is poised to set a new record as the longest stretch with a single rate in the central bank’s history.
With the Reserve Bank of India (RBI) opting to keep the repo rate steady at 6.5 per cent during the Monetary Policy Committee meeting on December 6, any potential change will have to wait until the next meeting, scheduled for early February 2025.
24 months in one stretch
This essentially means that the current 6.5 per cent spell will undoubtedly complete 24 months, setting a new record for the longest unchanged rate period.
There have been longer periods of 20 months and 18 months in the past too, but this is most likely the first time a repo rate stayed constant for 24 months in one go.
“The repo rate, which has stayed steady since February 2023, reflects the RBI’s cautious approach amid a volatile global economy, while prioritising inflation control and economic growth stability,” a former RBI top official told businessbenchmark.news.
Mixed views
Analysts point out that this is in stark contrast to the RBI’s earlier approach of frequent adjustments to tackle inflation and growth concerns. There were mixed views expressed by different quarters on the likely decision of RBI on December 6.
Nomura had an out-of-consensus prediction regarding the RBI’s December 6 meeting, expecting a 25 basis points (bps) rate cut that would lower the repo rate to 6.25 per cent. This expectation was based on India’s weakening economic growth and a benign inflation outlook.
Nomura argued that growth had already moderated below trend, with Q2 GDP growth at 5.4 per cent, and core inflation remaining subdued. They suggested that a rate cut would help stabilise growth without significant policy trade-offs.
Other longer periods
Historically, there have been longer periods where the Reserve Bank of India’s (RBI) policy rate remained unchanged. Notably, during the period between April 2003 and October 2004, the repo rate was held steady at 6 per cent for 18 months.
The Reserve Bank of India (RBI) has kept its policy repo rate unchanged for 15 consecutive months, spanning from May 2020 to August 2021.
During this time, the repo rate was held at a record low of 4 per cent as the RBI adopted an accommodative stance to support the economy through the COVID-19 pandemic.
Later, the repo rate remained unchanged at 6.25 per cent from October 2016 to August 2017 for 10 months in a single stretch.
Highest and lowest rates
A peep into the history of repo rates of RBI revealed that the highest repo rate was 14.5 per cent which was recorded in August 2000. At the same time, the lowest rate in the recent history was 4 per cent, which the RBI meticulously maintained during the COVID-19 period. RBI had gone for higher rates like 9 per cent during the 2008 global financial crisis period.
