RBI Continues To Keep Repo Rate Unchanged At 6.50 Per Cent The previous change in the key rate took place in February 2023 when RBI hiked the repo rate by 25 basis points to 6.50 per cent.

The Reserve Bank of India (RBI) on Thursday kept the repo rate unchanged at 6.50 percent in its monetary policy meeting. The previous change in the key rate took place in February 2023 when RBI hiked the repo rate by 25 basis points to 6.50 per cent. The decision was made unanimously by the Monetary Policy Committe (MPC), comprising RBI Governor Shaktikanta Das, Rajiv Ranjan, Ashima Goyal, Shashanka Bhide, Jayanth Varma, and Michael Patra. The committee held meetings for three days in a row-6th, 7th and 8th of June 2023.

Repo rate refers to the rate at which banks deposit money with RBI.

Repo rate since June 2022

The RBI governor also shared that the standing deposit facility (SDF) rate, the marginal standing facility (MSF), and the Bank Rate will remain unchanged at 6.25 per cent, 6.75 per cent and 6.75 per cent, respectively. The above mentioned rates were last changed in February 2023. This is the second bi-monthly monetary policy meeting of FY24.

The committee also decided with a majority of 5:1 to continue focusing on the withdrawal of accommodation to ensure the inflation progressively aligns with the targets while supporting growth.

"The MPC recognized that the pace of global economic activity is expected to decelerate in 2023. And this is mainly because it is getting dragged down by elevated inflation, tight financial conditions and geopolitical tensions which are still continuing. The pace of monetary tightening has slowed in recent months but uncertainty remains on its future trajectory as inflation continues to roll above targets across the world," said Das.

As per the committee's assesment, headline inflation will remain above 4 per cent throughout the FY23-24.

Reacting to the announcement, Abheek Barua, Chief Economist, HDFC Bank, said, "On inflation, the central bank recognised the near-term easing in inflationary pressures while being cautious about the future trajectory. The central bank lowered its inflation forecast only marginally to 5.1% and seems to be building in a buffer for any food prices spikes due to weather related disturbances during the monsoon season. If indeed these risks do not pan out, inflation could be lower than the RBI's projections leading to subsequent communications becoming more dovish."

Today's policy decision does little to move the needle in the bond market as it was broadly in line with expectations. Any rate cut expectations in 2023 that was being built up in the market are likely to be pushed forward for now.

Says Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company, "The RBI is reminding of greatest opening batsman Sunil Gavaskar. Standing without fear in front of a challenging global environment. Taking a fresh stance after scoring a century on a challenging wicket to reassure everyone that Mai Hoon Na. Indian economy is ideally balanced between Growth and Inflation under the RBI's navigation. Market will be pleasantly surprised if the GDP growth for FY 24 comes as per the expectations of the RBI at 6.5 %."

"We appreciate the RBI's prudent decision to maintain the repo rate at 6.5%, which reflects their commitment to fostering stability in the financial markets. By emphasizing the withdrawal of accommodation to align inflation with the target while supporting economic growth, the RBI has demonstrated a balanced and forward-thinking approach," shares Gurjodhpal Singh, CEO, Tide India.

"The RBI commentary in today's monetary policy was fairly optimistic on the resilience of Indian economy growth. On expected lines, the RBI MPC continued to maintain status quo on repo rate, and maintained its focus on the withdrawal of accommodation. The MPC further retained the GDP projection at 6.5% and set the target to achieve 4% inflation going forward, reflecting a cautiously optimistic outlook for the economy, while also continuing to remain vigilant on the inflation front. Indian economy remains resilient as indicated by the high frequency indicators, domestic demand conditions, improving household consumption and investment activity," said George Alexander Muthoot, MD, Muthoot Finance.

What should retail investors do?

According to Anshul Gupta, Co-founder and Chief Investment Officer, Wint Wealth, the announcement is in line with the broad expectations, the RBI has kept the repo and reverse repo rates unchanged. The outcome further validates the belief that we are closer to the end of the rate hike cycle.

"From retail investors' standpoint, this is an excellent time to lock in fixed deposits because interest rates may be close to their peak. Bond markets, on the other hand, have already discounted rate cuts and 10-year G-Sec yields have already fallen by more than 50 bps since September. For home loan borrowers, it is better to stick to their floating interest rate loans for now. Fixed-rate loans may be available in the market at some discount compared to floating-rate loans. However, considering that rate cuts are expected a few quarters down the line, it makes sense to stick to floating rate loans."

What do the real estate experts reckon?

Sandeep Runwal, President, NAREDCO Maharashtra welcomes the unchanged move, but feels that a reduction in the repo rate would help improve the sentiments of home buyer and give a push to home sales. "It would put more money in the hands of the home buyer encouraging him to go ahead and make a home buying decision. However, the RBI has been successful in containing inflation rate within permissible limits. The Indian economy is resilient to global headwinds and has fared remarkably well. The government has initiated a slew of positive policy measures which have sustained housing sales. This in addition to the government's decision to not raise the Ready Reckoner (RR) rates in the state for 2023-24, did boost homebuyers' sentiments. We once again urge the government to relax stamp duty rates which will fuel interest in home buyers. We hope that these positive developments will keep the homebuyers encouraged to come forward and buy their dream home."

"We commend the RBI for maintaining the repo rate at 6.5% during FY24's second bimonthly monetary policy meeting. This decision reflects their commitment to stability and proactive economic management. It is particularly beneficial for the real estate sector, as lower home loan rates will drive growth and encourage property investment. The availability of attractive financing options due to low-interest rates makes it easier for potential buyers to purchase homes, stimulating the market. Existing homeowners burdened by past rate hikes will also find relief. We appreciate the resilience of the Indian economy and anticipate positive impacts on growth. The RBI's prudent decision-making will contribute to sustained development in the real estate sector," notes Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory.