Monetary Policy Committee keeps repo rate unchanged at 6.5 per cent.
THE RBI’s Monetary Policy Committee (MPC), the interest rate-setting panel, kept the benchmark repo rate unchanged at 6.5 per cent for the tenth straight meeting on October 9. Governor Shaktikanta Das announced that the policy stance of the RBI has been changed to ‘neutral’ from ‘withdrawal of accommodation’. This means that all external benchmark lending rates linked to the repo rate will not increase, giving relief to borrowers as their equated monthly instalments (EMIs) will not increase. However, lenders may raise interest rates on loans that are linked to the marginal cost of fund-based lend- ing rate (MCLR), where the full transmission of a 250 bps hike in the repo rate between May 2022 and February 2023 has not happened. The repo rate (short for repurchase rate) is the interest rate at which the RBI lends money to com- mercial banks to meet short-term liquidity needs. Banks borrow funds from the RBI by selling Government securities with an agreement to repur- chase them at a later date. The repo rate plays a crucial role in controlling inflation and regulating the supply of money in the economy.
The change in the policy stance from ‘withdrawal of accommodation’ to ‘neutral, signals a shift in its approach to managing economic conditions, particularly in terms of interest rates and monetary support for the economy.
A ‘neutral’ stance suggests that the cen- tral bank is neither actively tightening (raising rates or reducing support) nor easing (lowering rates or providing more support). Instead, it is adopting a wait-and-see approach, where poli- cy is considered balanced and appropriate for current economic con- ditions. Interest rates in a neutral stance are usually at levels that neither
The unchanged repo rate means that all external benchmark lending rates linked to the repo rate will not increase, giving relief to borrowers as their equated monthly instalments will not increase
