The Reserve Bank of India (RBI) maintained the status quo in the repo rate for the seventh time this month. The rating agency Crisil now expects the rate cut cycle to begin from mid-2024.
The repo rate is the rate of interest at which the RBI lends to other banks.
Along anticipated lines, RBI kept the policy repo rate unchanged at 6.50 per cent, the seventh time in a row.
"We expect the RBI to initiate rate cuts in mid-2024," Crisil said in a report, with a rider that weather and crude prices are key monitorables.
"Food, the pain point for inflation last year, could ease if monsoon turns normal this year, as early weather forecasts suggest," it asserted.
Given the uneven inflation trends, the monetary policy committee of the RBI is awaiting clearer signs of easing towards the 4 per cent inflation target. "Strong domestic growth momentum has provided it space to do so."
Retail inflation in India is in RBI's two-six per cent comfort level but is above the ideal 4 per cent scenario. In March, it was 4.85 per cent. Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory quite well.
Barring the latest pauses, 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.
On inflation, Crisil expects consumer price index (CPI)-linked inflation to soften to 4.5 per cent in the current financial year 2024-25 from an estimated 5.5 per cent previous year.
"Normal monsoon and healthier farm output should help moderate inflation this fiscal. A non-inflationary budget that focusses on asset-creation rather than direct cash support bodes well for core inflation."
Meanwhile, RBI retained its inflation projection for 2024-25 at 4.5 per cent with Q1 at 4.9 per cent, Q2 at 3.8 per cent, Q3 at 4.6 per cent, and Q4 at 4.5 per cent. However, it noted that the outlook for inflation will largely be shaped by food price uncertainties (indications of a normal monsoon on one side while increasing incidence of climate shocks on other side).
FAQs
The rating agency Crisil now expects the rate cut cycle to begin from mid-2024. The repo rate is the rate of interest at which the RBI lends to other banks. Along anticipated lines, RBI kept the policy repo rate unchanged at 6.50 per cent, the seventh time in a row.
When repo rate is changed by RBI? ›
When the RBI wants to make more money available, it lowers the repo rate. This lowers the cost of borrowing money from the RBI for financial institutions. The repo rate is increased by the RBI to discourage banks from borrowing money and thereby lower the money supply.
What is likely to happen if the reverse repo rate is raised by RBI by 100 basis points? ›
Now, if the country's economy is experiencing inflation, RBI will increase the reverse repo rate to limit borrowings by commercial banks. This, in turn, will reduce their lending capacity and keep inflation in check.
What happens when the repo rate decreases? ›
Because other lending and interest rates are linked to the repo rate, a decrease in the repo rate will mean that the interest on your house and vehicle payments or savings and investment products may decrease too. This means that the monthly repayments for your debt will decrease.
What is the RBI repo rate? ›
Repo Rate full form is Repurchase Agreement or Repurchasing Option. Banks obtain loans from the Reserve Bank of India (RBI) by selling qualifying securities. The current Repo Rate in India, fixed by RBI is 6.50%. As per the latest news, the repo rate remained unchanged, as announced on 8th February 2024.
Will the repo rate decrease in 2024? ›
The Reserve Bank of India (RBI) kept the repo rate steady at 6.50% for the seventh consecutive time. Crisil forecasts rate cuts starting from mid-2024, contingent upon weather and crude prices. RBI is monitoring inflation, expected to ease to 4.5% in 2024-25, supported by a normal monsoon and asset-focused budget.
What is the RBI policy for February 2024? ›
The Reserve Bank of India kept its key repo rate on hold at 6.50% in the February 2024 meeting as expected, while keeping its policy stance of “withdrawal of accommodation” unchanged. There was some expectation in the market that the RBI would soften its tight liquidity stance at this meeting.
Who decides the reverse repo rate? ›
Repo and Reverse repo rates are decided by the Monitory policy committee (MPC) of RBI. A bank rate is the interest rate at which a nation's central bank lends money to domestic banks, often in the form of very short-term loans. Managing the bank rate is a method by which central banks affect economic activity.
What is the monetary policy rate in 2024? ›
RBI MPC Meeting 2024 Highlights: The RBI decided to keep the key policy repo rate unchanged at 6.5% in its April monetary policy along with maintaining the stance at 'withdrawal of accommodation'. India's real GDP growth for FY25 is projected at 7%.
What happens to money supply when reverse repo rate increases? ›
Description: An increase in the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant. An increase in reverse repo rate means that commercial banks will get more incentives to park their funds with the RBI, thereby decreasing the supply of money in the market.
However, initial positivity regarding potential interest rate drops has taken a turn as inflation appears to be a major factor. In early 2024, experts were predicting that SARB would begin to lower interest rates later in the year, perhaps even as early as May 2024.
What happens if RBI cuts repo rate? ›
Following the RBI repo rate cut, banks, NBFCs and other lenders may lower the interest rate on home loans as well as other loans. This is because most lenders determine the interest rate on loans using the Marginal Cost of Funds Based Lending Rate (MCLR), which takes into account changes in the repo rate.
What are the disadvantages of repo rate? ›
Loan Interest Rates: An increase in the Repo Rate usually leads to higher interest rates on loans offered by banks to consumers and businesses and vice versa. Investment: Higher loan interest rates can deter investment by businesses due to the higher cost of borrowing, while lower rates can encourage investment.
What is the highest repo rate of RBI? ›
Today, the current repo rate stands at 6.50% as per the recent update of 8th February 2024 when RBI decided to keep the rate unchanged. The last time the repo rate was changed from 6.25% to 6.50% on 8th February 2023. As of now the reverse repo rate stands at 3.35%.
What is bank rate vs repo rate? ›
The Bank Rate is the rate at which the central bank lends funds to commercial banks for long-term periods. The Repo Rate is when the central bank lends funds to commercial banks for short-term periods, typically overnight. Typically, it covers loans with maturities ranging from a few months to several years.
What is the current bank rate of India? ›
RBI Repo Rate
| Repo Rate | 6.50% |
|---|
| Bank Rate | 6.75% |
| Reverse Repo Rate | 3.35% |
| Marginal Standing Facility Rate | 6.75% |
An unchanged repo rate is a delight for buyers since it gives them another chance to buy real estate at the greatest pricing. “In February 2023, the MPC last increased this rate by 25 basis points, to 6.50%.
What will happen if the Reserve Bank increases the repo rate? ›
When the repo rate increases, the following happens: Interest rates on your home or car loans will increase, which in turn will increase the monthly repayments. * Interest rates on your savings or investments will also change.
What is the time period of repo rate? ›
Tenure for loans taken at a repo rate can be granted within one day time period. But when it comes to the loans at the bank rate, these rates have a time frame of around 28 days. Both the repo and bank rates are the rates that RBI usually lends the loan.
When reverse repo rate is increased? ›
When there is an increase in the reverse repo rate, it allows commercial banks to push their additional funds into the safe custody of the RBI for a short term and also earn attractive interests for the same. This step brings about a reduction in the liquidity of the banks.
