RBI likely to leave interest rates unchanged

MUMBAI: The RBI is expected to leave interest rates unchanged in its monetary policy review as it continues to maintain a balance between pushing for economic growth and keeping inflation in check.

The RBI’s Monetary Policy Committee (MPC) meeting being held from June 5 to 7, which is taking stock of the economic situation, is expected to stick to the current 6.5 per cent repo rate.

The repo rate is the interest rate at which the RBI gives short-term loans to banks to enable them to meet their liquidity requirements. This in turn has an impact on the cost of loans that banks extend to corporates and consumers.

A cut in interest rates results in more investment and consumption expenditure which spurs economic growth. However, the increased expenditure also pushes up the inflation rate as the aggregate demand for goods and services goes up.

RBI Governor Shaktikanta Das has stated that the central bank would continue with its disinflationary policy to ensure a stable growth path for the economy. He said food price inflation continues to weigh on the trajectory going ahead.

The RBI had last changed rates in February 2023, when the repo rate was hiked to 6.5 per cent. The RBI raised rates by 2.5 per cent between May 2022 and February 2023 after which they have been kept on hold to support economic growth despite inflationary pressures in the past.

The country’s annual retail inflation eased to 4.83 per cent in April but is still above the RBI’s medium-term target rate of 4 per cent. The fact that the economy has clocked a robust growth rate of 8.2 per cent for 2023-24 leaves the RBI with headroom to put off an interest rate cut until inflation comes down to its targeted level, according to economists.