8 Jun 2023

Repo Rate Unchanged; Loans Will Not Become Costlier; EMI Will Remain same

Mumbai: The Reserve Bank of India (RBI) decided not to increase the repo rate on Thursday. That is, the interest rate will remain at 6.50%. RBI has not changed the rates for the second time in a row. RBI Governor Shaktikanta Das informed about the decisions taken in the monetary policy meeting today.

Inflation likely to remain above 4%  in 2023-24

According to RBI estimates, inflation is likely to remain above 4% in the financial year 2023-24 (FY24). Apart from this, the real GDP growth in the financial year 2023-24 (FY24) is estimated to be 6.8%. 8% in Q1, 6.5% in Q2, 6% in Q3 and 5.7% in Q4.

Das said retail inflation has been below the upper band of 6 per cent for the last two years. The MPC meeting took place against the backdrop of consumer price-based (CPI) inflation declining to a 18-month low of 4.7 per cent in April. 

The RBI governor said that there is still concern and uncertainty about inflation. According to RBI estimates, inflation is likely to remain above 4% in the financial year 2023-24 (FY24). RBI has reduced the inflation forecast for FY24 to 5.1% from 5.2%.

RBI has hiked rates by 2.50% from May 2022 to February 2023. The repo rate was kept unchanged at 6.50% in the last meeting which was held in April. Monetary policy meets every two months.

Loans will not become expensive, EMI will also not increase

RBI has a powerful tool to fight inflation in the form of repo rate. When inflation is very high, RBI tries to reduce the money flow in the economy by increasing the repo rate. If the repo rate is high, the loan that banks get from RBI will be expensive. In return, banks make loans costlier for their customers. This reduces money flow in the economy. If the money flow decreases, then demand decreases and inflation decreases.

Similarly, when the economy goes through a bad phase, there is a need to increase money flow for recovery. In such a situation, RBI reduces the repo rate. Due to this, the loan from RBI becomes cheaper for the banks and the customers also get the loan at a cheaper rate. When economic activity came to a standstill during the Corona period, there was a decrease in demand. In such a situation, RBI increased the money flow in the economy by reducing the interest rates. As the repo rate has not been hiked, interest rates will remain same. 

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