RBI’s Monetary Policy Committee keeps the repo rate unchanged at 6.5 per cent

Announcing the bi-monthly monetary policy, RBI Governor Shaktikanta Das on Thursday said the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 6.5 per cent.
The repo rate is the rate of interest at which RBI lends to other banks. The decision was made during the three-day RBI’s monetary policy committee which started on Tuesday (February 6-8).
The RBI typically conducts six bi-monthly meetings in a financial year, where it decides interest rates, money supply, inflation outlook, and various macroeconomic indicators.
Keeping the repo rate remain unchanged at 6.5 per cent after having raised it by 250 basis points between May 2022 and February 2023, RBI Governor Shaktikanta Das said ‘India’s potential growth is propelled by structural drivers.’
He also mentioned increasing geopolitical tensions impacting supply chain and putting pressure on commodity prices especially crude oil.

He said MPC will remain watchful of food inflation so that the benefits gained are not frittered away.

With the repo rate being kept unchanged, there is likely to be no impact on loan EMIs.

In December 2023, the annual retail price inflation in India increased to 5.7%, as opposed to the 4.9% recorded in October. Headline inflation is still impacted by food price uncertainty.

The MPC is still committed to keeping inflation within the 4 percent target range.

The Gross Domestic Product (GDP) increased by 7.3%, marking the third successive year in a row.

The Monetary Policy Committee has maintained the status quo on the repo rate as inflation moderates in a resilient growing economy.

Since inflation is moderating, economic activity is steady and oil prices are lower and India is poised to be the growth engine for the global economy the markets were expecting the repo rate to be unchanged.

Markets have touched new highs, especially with earnings for the Q3FY24 coming healthy supporting the trajectory.

Investors are bullish as they are favouring rate cuts in 2024 which will unanimously boost the equity markets.

The banking sector is the most sensitive to changes in rate cycles and has been a major reason for incremental earnings in FY23 and in H1 of FY24 benefitting from the hikes and credit growth being robust and persistent.

Prolonged rate cuts will eventually lead to narrowing NIM but we expect rate cuts to begin in the last quarter and hence the trend in the banking sector is likely to continue in FY24.

NBFCs will be best positioned to benefit from cuts in rates as credit growth will improve followed by banks.

Credit-sensitive sectors like auto and real estate will see higher demand, as home loans will remain unchanged.