RBI Monetary Policy Update
The Reserve Bank of India (RBI) on Friday did not make any change in the policy rate repo in the first bi-monthly monetary policy review of the current financial year and maintained it at 6.5 percent. The policy rate has been kept unchanged with the aim of bringing down inflation to four percent and accelerating economic growth amid global uncertainty. This is the seventh consecutive time that the repo rate has not been changed.
Along with this, the Central Bank has estimated the GDP (gross domestic product) growth rate to be seven percent for 2024-25. Whereas retail inflation is estimated to be 4.5 percent in 2024-25.
Providing information about the decision taken in the three-day meeting of the Monetary Policy Committee (MPC) that started on Wednesday, RBI Governor Shaktikanta Das said, “Considering the current situation, the MPC has decided to maintain the policy rate at 6.5 percent.”
He said that with this the MPC members have also decided to maintain their decision to withdraw the accommodative stance to bring retail inflation in line with the target.
“After a thorough evaluation of the macroeconomic and financial trends that have evolved as well as the prognosis, the Reserve Bank MPC voted 5 to 1 to maintain the policy repo rate at 6.50%,” Das said.
In his announcement on monetary policy, Das stated that maintaining the 4% inflation objective in the face of strong growth remains the top priority for monetary policy.
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What is monetary policy?
If we understand monetary policy on a broader basis, then the central bank RBI maintains cash flow in the market through it. The less cash flow there is in the market, the more it will help in controlling the purchasing power of the people, which will ultimately reduce the demand and inflation will come down.
However, there is also a danger in this, for which RBI has to strike a balance. In monetary policy, cash flow has to be maintained in such a manner that the demand does not become so less that the economic growth of the country stops. Therefore, the Reserve Bank of India does this every two months and reviews the repo rate and reverse repo rate.
What is repo rate?
Repo is the interest rate at which commercial banks take loans from the central bank to meet their immediate needs. RBI uses it to control inflation. Keeping the repo rate at 6.5 percent means that there is less possibility of change in monthly installment (EMI) on various loans including house, vehicle etc.
