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RBI Keeps Repo Rate Unchanged for Eighth Time in a Row

June 11, 2024

RBI Keeps Repo Rate Unchanged for Eighth Time in a Row

The Reserve Bank of India (RBI) has kept the repo rate unchanged for the eighth consecutive time, the longest period without a change since 2000. This decision reflects the central bank’s cautious approach as it waits for inflation to decrease further before considering any rate cuts.

Despite inflation not meeting the RBI’s 4% target for the eighth policy review in a row, the decision is based on more than just inflation concerns. The current economic environment, with strong GDP growth, allows the RBI to be patient. India’s GDP is projected to grow by 8.2% for 2023-24, making it one of the fastest-growing economies in the world. Additionally, headline inflation is expected to average 4.5% for the financial year, close to the RBI’s target.

Some experts believe rate cuts might happen only if there are signs of slowing growth, which could occur towards the end of the fiscal year due to potential decreases in corporate investment and rising input costs. Weak consumer demand might also contribute to a slowdown. However, if growth stays strong with only minor issues, the RBI might not reduce rates this year.

There is also speculation that the RBI might cut rates as soon as the next policy review in August. By then, the central bank will have more information about fiscal policy after the new government’s budget presentation and a clearer view of food prices post-monsoon. The fact that two members of the six-member monetary policy committee voted for a rate cut in the latest meeting has fueled this speculation.

The RBI’s decision is supported by strong economic growth. Even if the policy rates remain high for a long time, the central bank believes it can handle the consequences. The RBI has revised its GDP growth projection for the current fiscal year to 7.2%, up from the previous 7.0%, showing confidence in the economy’s strength.

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