- The Reserve Bank of India has decided to maintain the repo rate at 6.5%.
- In October, food inflation increased by 6.61% as opposed to 6.56% in September.
- The spread between the repo and lending rates has been closing over the last few months.
For the fifth time in a row, the Reserve Bank of India (RBI) has decided to maintain the repo rate at 6.5%. Additionally, the RBI has updated its GDP growth forecast for FY24 from 6.5% to 7%.
Shaktikanta Das, the governor of the central bank, said that the decision to give unsecured loans more risk weighting is a preventative step to deal with potential risks. Das added that while emerging markets continue to be resilient to volatility, the world economy is still far from returning to its long-awaited normalcy.
In October, food inflation increased by 6.61% as opposed to 6.56% in September. By March 2023, the Consumer Price Index (CPI) is predicted to be between 5.4-5.5%; however, inflation in November and December may surpass 6%.
Mandar Pitale of SBM Bank India concurs with the MPC’s present “withdrawal of accommodation” position, and in the upcoming policy announcement, the MPC is probably going to keep interest rates at their current levels.
Some anticipate that the RBI’s MPC will switch from withdrawing accommodation to a “neutral” position, but this may not happen right away because the governor is adamant about keeping inflation within its 4% target range. According to a Yes Bank note, the RBI’s only choice is to maintain policy rates and the “withdrawal of accommodation” stance.
The spread between the repo and lending rates has been closing over the last few months, according to Rupeezy analyst Sheersham Gupta, suggesting a more direct transmission of monetary policy.