The repo rate is the rate of interest at which RBI lends to other banks. A consistent decline in inflation (currently at an 18-month low) and its potential for further decline may have prompted the central bank to put the brake on the key interest rate again. Inflation has been a concern for many countries, including advanced economies, but India has managed to steer its inflation trajectory quite well.
Barring the April pause, the RBI raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
India’s retail inflation was above RBI’s 6 per cent target for three consecutive quarters and had managed to fall back to the RBI’s comfort zone only in November 2022. Under the flexible inflation targeting framework, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row.
Now what remains to be seen is whether it will for the third straight time keep the repo rate unchanged or otherwise, given there was an uptick in inflation in June. “While the market is expecting a status quo in the repo rate, it will be keen to hear the RBI’s assessment of the inflation trajectory and the outlook for growth,” Santosh Meena, Head of Research, Swastika Investmart Ltd said.
Read more:
Why RBI May Not Change Interest Rate And Maintain Status Quo - India.com
