RBI keeps policy repo rate unchanged as inflation softens

Reserve Bank of India Headquarter. [File Photo]

Mumbai: The Reserve Bank of India’s (RBI) monetary policy committee unanimously decided to keep the repo rate unchanged at 6.5%, ANI reported.

The repo rate is the rate of interest at which RBI lends to other banks.

A consistent decline in inflation (currently at an 18-month low) and its potential for further decline may have prompted the central bank to put the brake on the key interest rate again.

The report quoting analysts said they had expected the RBI to continue to keep the repo rate unchanged.

Inflation has been a concern for many countries, including advanced economies, but India has managed to steer its inflation trajectory quite well.

The RBI in its April meeting, the first in 2023-24, had paused the repo rate.

Barring the April pause, the RBI raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation.

Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.

India’s retail inflation was above RBI’s 6 per cent target for three consecutive quarters and had managed to fall back to the RBI’s comfort zone only in November 2022. Under the flexible inflation targeting framework, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row.

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