The Reserve Bank of India (RBI) has decided to keep the repo rate unchanged at 5.5%, while continuing with its ‘neutral’ policy stance, Governor Sanjay Malhotra announced on Wednesday.
The Monetary Policy Committee (MPC) unanimously decided after a comprehensive review of the country’s macroeconomic conditions and the balance between inflation and growth.
A neutral policy stance, Malhotra explained, neither infuses liquidity nor restricts it, aiming to control inflation without hindering economic momentum.
While overall inflation has eased, food prices, especially vegetables, remain somewhat unpredictable, he noted.
Core inflation, however, has been stable at approximately 4%.
Malhotra expressed optimism about a pickup in economic activity, supported by a favourable monsoon and the upcoming festive season.
He further stated that the Indian economy is likely to experience strong medium-term growth despite global uncertainties, bolstered by the government’s and the RBI’s supportive policies.
These domestic prospects contrast with slower global growth and rising international inflation, the governor pointed out.
Rate Cuts and Their Impact
In its last meeting on 6 June, the RBI had lowered the repo rate by 50 basis points from 6% to 5.5% and also slashed the Cash Reserve Ratio by 100 basis points to help stimulate growth.
The latest pause means the repo rate has been reduced by 100 basis points since February, although the full impact of these cuts is still making its way through the financial system.
Lower rates and improved liquidity typically reduce borrowing costs for both consumers and businesses, which can boost spending and investment and, in turn, drive economic growth.
However, Malhotra cautioned that the effectiveness of these cuts depends on how quickly commercial banks transfer the benefits to borrowers.
He concluded by reaffirming the RBI’s commitment to managing inflation while supporting economic expansion as part of its ongoing policy easing strategy.
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