The Reserve Bank of India's six-member monetary policy committee is in a three-day meeting to determine India's key interest rates, with RBI governor Shaktikanta Das set to announce the decision. The focus is on the repo rate, currently at 6.5%, which affects deposit and loan rates; the committee aims to manage inflation within 4% with a range of 2-6%.
"We expect the RBI MPC to keep the repo rate unchanged as the inflation rate in India remains within the upper threshold of tolerance. This will help the real estate sector maintain its current momentum," Das said. "This will help the real estate sector maintain its current momentum."
According to a press release, the six-member monetary policy committee of the Reserve Bank of India is currently engaged in a three-day deliberation to determine the pivotal interest rates within the country. This session, commencing on August 8, will culminate with RBI Governor Shaktikanta Das unveiling the rate adjustments during the policy announcement scheduled for August 10. All focus is directed towards the present repo rate, standing at 6.5 percent, which has undergone a hike of 250 basis points since May 2022. Indian banks utilize the repo rate as a foundation for setting interest rates for both deposits and loans. The previous MPC gathering transpired between June 6 and 8.
The MPC, consisting of three external members and three RBI officials, is vested with the task of shaping the nation's monetary policy. Their primary mandate is to maintain retail inflation in India under 4 percent, encompassing a permissible range of 2 to 6 percent. Shashanka Bhide, Ashima Goyal, and Jayanth R Varma constitute the external members, while alongside Governor Das, the other RBI representatives in the MPC are Rajiv Ranjan and Michael Debabrata Patra. In June, India's consumer price index (CPI)-based retail inflation escalated to a three-month pinnacle of 4.81 percent, largely attributed to surging food prices. Nevertheless, inflation remains within the RBI's comfort zone of sub-6 percent. The forthcoming inflation data for July is scheduled for release on August 14.
The repo rate, or repurchase rate, delineates the rate at which the RBI extends loans to commercial banks in exchange for securities. This tool is wielded by the central bank to manage liquidity in the economy. During inflationary periods, the repo rate is elevated to constrict the availability of funds for expenditure.
An upsurge in the repo rate prompts banks to offer augmented returns on deposits, prompting individuals to place more money in their accounts, thereby siphoning off liquidity. Concurrently, lending rates are augmented, deterring people from seeking additional loans and constraining their spending. Conversely, a lower repo rate places more disposable income in the hands of individuals, fostering heightened spending and escalating demand, thereby counteracting deflationary trends.
