Loans won’t become more expensive, and your EMI won’t increase. The Reserve Bank of India (RBI) has not changed interest rates for the fifth consecutive time. The RBI has maintained interest rates at 6.5%. This means that loans won’t become more expensive, and your EMI won’t increase. The last time the rates were adjusted was in February 2023 when they were increased by 0.25% to 6.5%.
In the past financial year, the repo rate was increased by 2.50% in six steps. Information about the decisions taken in the Monetary Policy Committee (MPC) meeting, ongoing since December 6, was provided by RBI Governor Shaktikanta Das today, Friday. These meetings occur every two months, with the first meeting of this financial year held in April.
The MPC of the RBI consists of six members, including external and RBI officials. Along with Governor Das, RBI officials Rajiv Ranjan and Michael Debabrata Patra, Executive Directors, and Deputy Governor are actively involved, while external members Shashanka Bhide, Ashima Goyal, and Jayant R Varma also participate.
Monetary Policy Committee has taken three more decisions
RBI is working on establishing a cloud facility to enhance data security and privacy in the financial sector in India. RBI has decided to increase the transaction limit for UPI payments related to hospitals and education from 1 lakh rupees to 5 lakh rupees. RBI has also taken a decision to create a regulatory framework for web aggregation of loan products and establish a FinTech depository, which will bring more transparency in digital lending.
The repo rate is a powerful tool to combat inflation
The RBI has a powerful tool called the repo rate to combat inflation. When inflation is too high, the RBI tries to reduce money flow in the economy by increasing the repo rate. If the repo rate is high, the loans banks get from the RBI become expensive.
In return, banks offer loans to their customers at a higher cost. This reduces money flow in the economy. When money flow is reduced, there is less demand, and inflation decreases.
Similarly, when the economy goes through a tough phase and there is a need to boost recovery, the RBI reduces the repo rate. This makes the loans from the RBI cheaper for banks, and customers also get loans at lower interest rates.
Let’s understand this with an example. During the COVID-19 pandemic, economic activities came to a halt, leading to a decrease in demand. In such a situation, the RBI lowered interest rates to increase money flow in the economy.
The RBI has released estimates for inflation and GDP
In FY24, the estimated real GDP growth has been increased from 6.5% to 7%. The RBI has kept the retail inflation estimate for FY24 at 5.40%.
Know what the inflation numbers say?
1. In October, retail inflation was 6.83%.
Retail inflation decreased to 4.87% in October due to a drop in vegetable prices. This is the lowest level of retail inflation in the last 5 months. It was 5.02% in September. Meanwhile, the inflation in food and beverages decreased from 6.62% to 6.61%.
2. Wholesale inflation rate was -0.52%.
Amid a decrease in the prices of food and beverages, India’s wholesale inflation rate dropped to -0.52% in the month of October. This was the seventh consecutive month when wholesale inflation remained below zero. In September, wholesale inflation was -0.26%. It was -0.52% in August.
3. How does inflation affect?
Inflation is directly related to purchasing power. For example, if the inflation rate is 7%, the value of Rs. 100 earned will be only Rs. 93. Therefore, it is advisable to invest keeping in mind the inflation rate; otherwise, the value of your money will decrease.
FAQs Related to RBI’s Monetary Policy, Interest Rates, and Economic Indicators
1. What is the latest decision by the Reserve Bank of India (RBI) regarding interest rates?
The RBI has kept the repo rate unchanged at 6.5% for the fifth consecutive time, ensuring stability in interest rates.
2. How does the repo rate impact loans and EMIs?
The repo rate is a tool the RBI uses to combat inflation. If the repo rate is high, loans from the RBI become expensive for banks, and in turn, customers may face higher interest rates on loans. Keeping it unchanged at 6.5% indicates stability in borrowing costs.
3. When was the last adjustment in interest rates, and what was the change?
The last adjustment in interest rates was in February 2023 when the rates were increased by 0.25% to 6.5%.
4. How frequently does the RBI review and make decisions on interest rates?
The Monetary Policy Committee (MPC) meetings, where interest rate decisions are made, occur every two months.
5. What decisions has the RBI recently taken apart from interest rates?
The RBI is working on establishing a cloud facility for data security, increasing UPI transaction limits for hospitals and education, creating a regulatory framework for web aggregation of loan products, and establishing a FinTech depository.
6. What is the repo rate’s role in managing inflation and the economy?
The repo rate is a tool to control inflation. When inflation is high, the RBI may increase the repo rate to reduce money flow, and when the economy needs a boost, it may lower the repo rate to make loans cheaper.
7. What are the RBI’s estimates for inflation and GDP growth in FY24?
In FY24, the estimated real GDP growth has been increased from 6.5% to 7%, and the retail inflation estimate is maintained at 5.40%.
8. What are the recent inflation figures for October?
In October, retail inflation was 6.83%, but it decreased to 4.87% due to a drop in vegetable prices. Wholesale inflation rate was -0.52% in October.
9. How does inflation impact purchasing power?
Inflation is directly related to purchasing power. For instance, if the inflation rate is 7%, the value of Rs. 1000 earned will be only Rs. 930, indicating a decrease in purchasing power.