RBI keeps repo rate unchanged at 6.5%, decision by 4:2 majority

The Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday (August 8) announced that the Central Bank’s Monetary Policy Committee (MPC) has decided to keep the repo rate in India unchanged at 6.5 per cent.

The RBI Governor-headed six-member MPC has kept the repo rates unchanged for 1.5 years, or nine meeting sessions, now.

Das said that the decision was made by 4:2 majority of MPC members, similar to what happened in June. This means that two members of the MPC did not agree to the repo rate remaining steady at 6.5 per cent.

The MPC also maintained its “withdrawal of accommodation” stance, too.

What is repo rate?

The repo rate is the interest rate at which the RBI lends money to commercial banks or financial institutions in India.

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If the repo rate is hiked, commercial banks find that borrowing from the central bank is more expensive. Consequently, these banks may raise the interest rates for their customers. Owing to that, people who are repaying loans may have lesser money in hand to spare towards other expenses. As such, there may be a decrease in household spending across the country. That could theoretically rein in inflation.

Comments on inflation, GDP growth

Shaktikanta Das said that inflation is receding gradually across economies, even as medium-term global growth faces significant challenges. The consumer price index (CPI) inflation forecast for financial year 2025 (FY25) in India was retained by the RBI at 4.5 per cent.

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He noted that India’s domestic growth remains resilient and said it is supported by steady urban consumption with manufacturing gaining traction due to increasing demand.

The RBI has retained its real gross domestic product (GDP) growth projection for FY25 for India at 7.2 per cent with ‘risks evenly balanced’.

However, the RBI MPC did revise the real GDP growth projection for the first quarter of FY25 (April-June 2024) downward to 7.1 per cent from earlier estimates of 7.3 per cent.