The Reserve Bank of India?s (RBI) six-member Monetary Policy Committee (MPC) has kept the repo rate unchanged at 6.5% for the ninth time, amidst concerns over rising food inflation. Four out of six MPC members voted in favor of maintaining the current rate. The committee also continued with the monetary policy stance of withdrawal of accommodation.
Announcing the decision, RBI Governor Shaktikanda Das stated that inflation has been on a declining trajectory. The RBI had last cut the repo rate by 40 basis points to 4% in May 2020 during the height of the Covid-19 pandemic, which significantly affected the economy. Since then, the RBI has raised the repo rate by 250 basis points to the current 6.5% to combat high inflation levels post-pandemic.
By leaving the repo rate steady at 6.5%, external benchmark lending rates (EBLR) linked to the repo rate will not increase, providing relief to borrowers as their equated monthly instalments (EMIs) will remain unchanged. However, lenders may raise interest rates on loans linked to the marginal cost of fund-based lending rate (MCLR), where the full transmission of the 250 bps hike in the repo rate between May 2022 and February 2023 has not yet been realized.
In response to the 250 bps policy rate hike since May 2022, banks have adjusted their repo-linked EBLRs upwards. The 1-year median MCLR of banks increased by 168 bps during the period from May 2022 to June 2024.
