Monetary Policy Committee Meeting 2024: This means that all external benchmark lending rates linked to the repo rate will not increase, giving relief to borrowers as their EMIs will not increase.
The Reserve Bank of India Wednesday kept the repo rate unchanged at 6.5 per cent for a tenth time in row. The rate-setting panel, however, changed the monetary policy stance from ‘withdrawal of accommodation’ to ‘neutral’.
This means that all external benchmark lending rates linked to the repo rate will not increase, giving relief to borrowers as their equated monthly instalments (EMIs) will not increase.
However, lenders may raise interest rates on loans that are linked to the marginal cost of fund-based lending rate (MCLR), where the full transmission of a 250 bps hike in the repo rate between May 2022 and February 2023 has not happened.
In response to the 250 bps hike in the policy repo rate since May 2022, banks have revised upwards their repo-linked external benchmark-based lending rates (EBLRs) by a similar magnitude. The one-year median MCLR of banks has increased by 170 bps during May 2022 to August 2024.
What did the previous MPC meeting say?
In August, while keeping the rate unchanged, the rate-setting panel had raised concerns over elevated food inflation over the past many months, as it could derail the disinflation path. Headline inflation, as measured by year-on-year (y-o-y) changes in the all-India consumer price index (CPI), edged up to 5.1% in June from 4.8% in May. The increase in the inflation rate is attributed to food inflation, which firmed up to 8.4% in June compared to 7.9% in the previous month. “Food component of retail inflation remains stubborn… food inflation contributed around 70 per cent of the overall retail inflation,” RBI Governor Shaktikanta Das had said.
The government last week reconstituted the Monetary Policy Committee, appointing three external members — Ram Singh, Director, Delhi School of Economics, University of Delhi; Saugata Bhattacharya, Economist and Nagesh Kumar, Director and Chief Executive, Institute for Studies in Industrial Development.
What are the stakeholders saying about RBI’s decision?
Reacting to the RBI’s move to keep the repo rate unchanged, Adhil Shetty, the CEO of BankBazaar.com, says that the current stance of the central bank signals that it is “ready to go either way – if inflation stays low, we may see rate cuts in the future. However, at present, it is a wait-and-watch situation.”