RBI Keeps Repo Rate Unchanged For 10th Consecutive Time, Monetary Policy Shifted To Neutral Stance

On Wednesday (9 October), the Reserve Bank of India (RBI) maintained the repo rate at 6.5 per cent for the 10th consecutive time. However, the central bank’s Monetary Policy Committee (MPC) shifted its stance from 'withdrawal of accommodation' to 'neutral.'

This decision means that external benchmark lending rates tied to the repo rate will remain unchanged, offering relief to borrowers as their equated monthly instalments (EMIs) will not increase.

However, loans linked to the marginal cost of fund-based lending rate (MCLR) may still see an uptick, as the full impact of the 250 basis points (bps) hike in the repo rate between May 2022 and February 2023 has not yet been fully transmitted.

Since the repo rate hike began in May 2022, banks have adjusted their external benchmark-based lending rates (EBLRs) upward by a similar 250 bps. During this period, the one-year median MCLR for banks has risen by 170 bps, reflecting the partial transmission of the rate hike.

In a previous meeting, while keeping the rate steady, the MPC raised concerns over persistent food inflation, which could disrupt the path toward reducing inflation.

Headline inflation, measured by the year-on-year (y-o-y) changes in the Consumer Price Index (CPI), rose to 5.1 per cent in June, up from 4.8 per cent in May.

Food inflation, a key driver of this increase, climbed to 8.4 per cent in June from 7.9 per cent the previous month. RBI Governor Shaktikanta Das noted that food inflation was responsible for about 70 per cent of overall retail inflation.

Recently, the government reconstituted the Monetary Policy Committee, appointing three new external members: Ram Singh, Director of the Delhi School of Economics; Saugata Bhattacharya, economist; and Nagesh Kumar, Director and Chief Executive of the Institute for Studies in Industrial Development.