Everyone was expecting 25 basis points increase in policy rate this time but it was a total surprise as RBI did not increase the policy rate in its MPC meeting. RBI has been constantly increasing repo rate since May 2022 but why RBI paused repo rate this time. Let’s understand this in simple language. But first let’s have a look at the policy rates and what is repo rate?
Repo Rate
Repo Rate is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks or financial institutions in India against government securities. If repo rate is high then consumers spend less and when repo rate is low consumers spend more. When you take a home loan from bank, bank charges you a interest rate, for example 8.5%. This interest rate is linked to Repo rate. If repo rate will increase then this interest rate will also increase and if repo rate decreases then this interest rate will also decrease. So, consumers will spend less or more accordingly.
RBI Policy Rates
| Policy Repo Rate | 6.50% |
| Standing Deposit Facility Rate | 6.25% |
| Marginal Standing Facility Rate | 6.75% |
| Bank Rate | 6.75% |
| Fixed Reverse Repo Rate | 3.35% |
RBI Last 5 year Repo Rate
| Date | Rate |
| 6th April 2023 | 6.50% |
| 8th February 2023 | 6.50% |
| 7th December 2022 | 6.25% |
| 30 September 2022 | 5.90% |
| 8 June 2022 | 4.90% |
| 4 May 2022 | 4.40% |
| 22 May 2020 | 4.00% |
| 27 March 2020 | 4.40% |
| 04 October 2019 | 5.15% |
| 07 August 2019 | 5.40% |
| 06 June 2019 | 5.75% |
| 01 August 2018 | 6.50% |
| 06 June 2018 | 6.25% |
| 02 August 2017 | 6.00% |
Why RBI did not increase Repo Rate?
Expert economists can currently provide of four reasons for this:
- slowing consumption
- less private investment
- high interest rates leading to decrease in demand
- it will favour the growth-inflation tradeoff
- many global agencies lowering India’s growth forecasts for this financial year amid expectations of global economic slowdown and monetary tightening by other countries.
Growth Rate
The RBI has projected real GDP growth for 2023-24 at 6.5 per cent. This is higher than the forecast of 6.4 per cent made in the February 2023 policy. The RBI Governor said the country’s real gross domestic product (GDP) is expected to have recorded a growth of 7 per cent in 2022-23.
Inflation forecast
Assuming an annual average crude oil price (Indian basket) of $ 85 per barrel and a normal monsoon, the RBI has projected CPI inflation to be at 5.2 per cent for 2023-24, lower than the expectation of 5.3 per cent announced in the February 2023 policy.
In my opinion the RBI need to decrease Repo rate. if market got lot of economic activity and increase the purchasing power of people.