The Reserve Bank of India (RBI) is unlikely to change interest rates and will maintain the status quo, according to the ongoing third monetary policy committee meeting. The outcome of the review will be announced on Thursday. The repo rate, which is the rate at which RBI lends to other banks, is expected to remain unchanged. The central bank may continue to pause the rates due to concerns over inflation. The RBI typically holds six meetings in a financial year where it decides on interest rates, money supply, inflation outlook, and other macroeconomic indicators. The previous meeting in June also resulted in no change to the repo rate. The RBI’s decision to pause interest rates may be influenced by the decline in inflation and the potential for further decline. India has managed to control its inflation trajectory, and raising interest rates can help suppress demand and lower inflation. Retail inflation in India was above the RBI’s target of 6% for three consecutive quarters but fell back to the target range in November 2022. Under the inflation targeting framework, the RBI is considered to have failed in managing prices if the CPI-based inflation is outside the 2-6% range for three consecutive quarters. It remains to be seen whether the RBI will maintain the repo rate or make any changes, considering the recent uptick in inflation. The market expects the repo rate to remain unchanged, but market participants are eager to hear the RBI’s assessment of the inflation trajectory and growth outlook. The unchanged repo rate will benefit the real estate sector and help maintain its current momentum. The borrowing cost, which started rising in May last year, has stabilized since the repo rate was last increased in February. The RBI takes into account various factors, including global developments and interest rate hikes by central banks like the US Fed.
Why the RBI May Choose to Keep Interest Rates Unchanged and Maintain the Status Quo
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