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Banks (Finance)

RBI Keeps Policy Repo Rate Unchanged, Retains Interest Rate on Home and Auto Loans

Strategic Insights

— 1 min read

The Reserve Bank of India (RBI) has retained the policy repo rate at 6.5 per cent, keeping the interest rates on home and auto loans unchanged for the second time running. At the end of a three-day meeting, the monetary policy committee (MPC) reiterated its intention to align retail inflation closer to the medium-term target of 4 per cent. Despite the inflation target being within the RBI's target band of 2-6 per cent in March and April, economists now expect the central bank to go on an extended pause and a rate cut could happen by the end of this calendar year or in the first quarter of 2024.

Key Takeaways:

  • The RBI retained the policy repo rate at 6.5 per cent, keeping interest rates on home and auto loans unchanged for the second time running.
  • The monetary policy committee (MPC) reiterated its intention to align retail inflation closer to the medium-term target of 4 per cent.
  • Despite inflation being within the RBI's target band, economists now expect the central bank to go on an extended pause before cutting interest rates.
  • The RBI governor, Shaktikanta Das, emphasized the vigil on inflation will continue due to risks such as El Nino.
  • The MPC slightly lowered the inflation projection for this fiscal to 5.1 per cent from 5.2 per cent in the previous meeting.
  • HDFC Bank's Treasury Economics Research Team expects the RBI to start its rate cut cycle once inflation uncertainty moderates and a path towards the 4 per cent target is visible.

Statistics:

  • The RBI retained the policy repo rate at 6.5 per cent.
  • Inflation is projected to decline in 2023-24 from its levels in 2022-23.
  • The cumulative rate hike of 250 basis points undertaken since May 2022 to February 2023 is transmitting through the economy.
  • The RBI's inflation projection for this fiscal is 5.1 per cent.
  • The rupee fell 5 paise to close at 82.57 against the dollar on Thursday.

Sources:

  • "RBI keeps policy repo rate unchanged, retains interest rate on home and auto loans", ABP Live.
  • "RBI policy: Rate cut expectations rise after RBI retains key rates", Economic Times.
  • A note from HDFC Bank's Treasury Economics Research Team.

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