RBI Monetary Policy: Repo Rates Unchanged In A Surprise Move

The Reserve Bank of India (RBI) today kept the repo rates on hold, with "a readiness to act". This was largely against expectations of a 25 basis points hike by economists and analysts.

The repo rate is the rate at which the RBI lends money to banks. Any hike in the repo rate by the RBI can lead to an increase in lending rates and deposits rate by banks, as borrowings for banks become more expensive.

Today's status-quo on repo rate comes despite the fact that inflation in the economy continues to remain sticky. In fact, retail inflation has remained above RBI's target range of 2-6%. The RBI has a mandate to ensure that retail inflation remains at 4 per cent with a margin of +/-2 per cent. This means the upper tolerance level of inflation is 6%, which the RBI has breached in the past.

In fact, the central bank failed to keep inflation rate below six per cent for three consecutive quarters beginning January 2022. RBI Governor Shaktikanta Das said that the repo rates remain on hold with a readiness to act, which implies that we could see a 25 basis points hike sometime later, if inflation remains sticky.

"The fast-evolving world order has meant that policy repricing keeps markets on the toes, and they keep swinging on the timing and extent of policy pivots. However, on net, even as global tightening is still expected, the firm anticipation of near-ending (and quick reversal) of the rate cycle in the west has eased financial conditions somewhat," said Madhavi Arora Lead Economist at Emkay Global Financial Services.

Key central banks across the globe, including the US Federal Reserve, the European Central Bank and Bank of England have hiked interest rates.