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RBI policy: RBI Holds Key Repo Rate at 6.5%, Flags Concerns Over Food Inflation

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RBI policy: In a significant monetary policy move, the Reserve Bank of India (RBI) opted to keep its key repo rate unchanged at 6.5% on Friday. This decision follows six consecutive rate hikes between April 2022 and February this year, marking a pause in the central bank’s tightening cycle. While there was anticipation in the market for signals indicating a shift towards rate cuts, Governor Shaktikanta Das conveyed a different tone, emphasizing that “monetary policy will remain actively disinflationary.”

One primary concern voiced by the RBI is the persistence of elevated food inflation. Despite a slight easing in overall inflation for a few months, the central bank remains cautious about the impact of rising food prices. The outlook suggests that retail inflation is expected to remain above 5% for the current fiscal year and the next, indicating continued challenges for consumers dealing with high borrowing costs.

Governor Shaktikanta Das highlighted India’s resilience and robust growth outlook, countering global economic uncertainties arising from geopolitical unrest. Despite concerns in West Asia and Europe, the RBI Policy remains positive about the domestic economy, asserting that India continues to be the fastest-growing major economy globally.

The central bank projects a growth rate of 7% for the current fiscal year, up from 6.5% in the previous year, after witnessing faster-than-anticipated growth in the July–September quarter. However, the RBI’s cautious stance on inflation remains, with Governor Das pointing to uncertainties and risks related to food inflation in the near term.

Das’s decision to keep the RBI policy unchanged suggests a commitment to staying ahead of potential inflationary pressures. Despite expectations for a global easing of interest rates, the central bank’s commentary indicates a reluctance to join the trend, pushing back on anticipations for an imminent rate cut cycle.

What does this mean for consumers? The RBI’s plans and commentary imply that there might be no immediate relief from higher borrowing costs, particularly for those with home loans. The central bank’s earlier series of rate hikes has already impacted equated monthly installments (EMIs) for borrowers, necessitating an extension of loan durations for some. Even if the RBI eventually considers rate cuts, the transmission to lending costs is expected to take time, posing continued challenges for consumers in the foreseeable future.

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