The 6.5% REPO Rate has remained unchanged by the RBI-led Monetary Policy Committee (MPC). The six-member committee has decided that, for the sixth time in a row, the REPO rate will remain unchanged. The RBI Governor Shri Shaktikanta Das has stated that MPC (Monetary Policy Committee) has decided with majority of 5:1 to remain focused on withdrawal of accommodation, said RBI Guv.
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In addition, the RBI Governor voiced concerns about the state of the global economy, citing the recent disruption of trade routes in the Red Sea as well as the emergence of new flashpoints across the globe and ongoing wars and conflicts. In spite of these global uncertainties, he has nevertheless expressed his continued faith in India’s economy, which is robust and resilient with a strong GDP.
A few international brokerages had projected a shift in the REPO rate in light of the finance minister’s recent, financially responsible interim budget proposal in the Indian Parliament. The 2024 interim budget did not have an inflationary outlook, and the RBI could have lowered interest rates by 50 basis points. However, given the RBI’s resolve to lower inflation to 4% and the upcoming election, many economists also predicted no change in the same. Real estate and the average person will be impacted by any increase in EMIs and at same time any temporary increase in inflation due to variation of REPO rate will impact the political position of the Government.
“As the RBI maintains its stance of no change on interest rates for the sixth consecutive policy review, we acknowledge the stability it brings to the financial landscape. The sustained pause in the REPO rate is poised to benefit India’s economic trajectory positively.”, Said Anu Aggarwal, President & Head, Corporate Banking, Kotak Mahindra Bank.
This shows that the reforms against inflation are yet to produce the desired results and RBI is extremely focused on pulling down the inflation rate. The inflation rate is on a downward path, but it has not reached the RBI target of 4%.
Implications:
- EBLR (External Benchmark Lending Rate) linked to REPO Rate will not rise.
- EMIs of borrowers will not increase. For the real estate sector, this status quo is a relief.
In this tricky time just before the General Election 2024, Central Government was very cautious in the fiscally prudent interim budget 2024 & at the same time RBI is also not intending to meddle through the short-term effects which is cumbersome to handle, though the mid-term & long-term results would have helped the economy.
The common man may expect a muscular financial budget from the newly elected central Government and probably a change in REPO rate subsequently, in the coming months in 2024.
“With a similar stance as the last time, we feel the interest rates have peaked and there are higher chances that this accommodative stance would shift in the latter half of the year, by when the interest rate cuts would begin.”- Umeshkumar Mehta, CIO, SAMCO Mutual Fund.
What is REPO Rate?
REPO Rate is a short form of Repurchase Agreement or Repurchase Option. Commercial banks obtain loans from Reserve Bank of India at an interest rate defined by Monetary policy committee which is led by RBI. This interest rate is known as REPO rate. The current REPO Rate stands at 6.5%.
Current Rates (08/02/2024) as per RBI:
- Policy Repo Rate: 6.5%
- Standing deposit Facility Rate: 6.25%
- Marginal standing facility rate: 6.75%
- Bank rate: 6.75%
- Fixed Reverse Repo Rate: 3.35%
- INR:USD Exchange Rate: 82.67