The Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) has decided to keep the repo rates unchanged at 6.5% in its meeting on August 10, 2023.
The central bank’s move to keep its key policy rates unchanged for the third consecutive occasion was quite anticipated in the market.
Overall, this pause in the repo rate will aid in improving market sentiments which is essential, taking into account the upcoming festive season.
Also, the banks are mandated to maintain an incremental cash reserve ratio (CRR) of 10% on the increase in their net demand and time liabilities (NDTL) between May 19 and July 28, starting fortnight August 12, as per RBI.
Earlier, the two bi-monthly policy reviews were conducted in April and June 2023. As per the June 2022 review, the RBI MPC had taken the stand to retain the repo rate at 6.5%.
Since May 2022, the apex bank has raised rates by 250 basis points (bps) in an effort to arrest surging prices. At the global level, India continues to outperform others in terms of consumption.
The unchanged repo rate will aid in maintaining the upsurge in housing sales, particularly in the mid-and luxury- segments, and help in further retaining the momentum in the stock markets, which has been setting all-time high records in the past preceding months.
Having said that the risk of inflation continues to remain a bigger concern, though. Food price hikes, which are typical in the phase of monsoon, drove up headline inflation in June 2023, taking a toll on a four-month downward trend.
Experts expect it to have touched 6.4% in July 2023, surging above the central bank’s 2-6% comfort band. In case it rises a bit further, this could definitely have repercussions in the market.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.