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‘I’m Not the Sanjay of Mahabharata’: RBI Governor on Repo Rate Amid Trump’s Tariff Turmoil

April 9, 2025, 2:51 pm

Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday made a 25 basis point reduction in the repo rate, taking it down to 6.5%. This is the second rate reduction in the calendar year and has come at a time when there is increasing global economic uncertainty on account of trade tariffs led by US President Donald Trump.

The RBI’s Monetary Policy Committee (MPC) also shifted its policy stance from “neutral” to “accommodative”, signaling potential further rate cuts or status quo in upcoming policy reviews.

Uncertain Road Ahead for Repo Rate Cuts

Speaking to reporters, Malhotra emphasized the uncertain outlook for further reductions in the repo rate due to ongoing global volatility.

“We have reduced repo rates. We have changed the stance going forward, which means that the direction of the policy repo rate is downwards, where it will reach we really don’t know. I’m Sanjay, but I’m not the Sanjay of Mahabharata, to be able to foresee that far. I do not have that divine vision that he had,” said the Governor, providing a humorous comment amidst serious economic discussion.

Government and RBI Should Act in Concert

Responding to a question regarding whether the RBI would play a more prominent role in steering the changing global economic landscape, Malhotra opined that the central bank and the government need to act in concert.

“It’s a joint effort. You know, who does more of the heavy lifting, etc. The government has done its bit. I think, in the budget that you saw recently, a large number of measures, whether you know it is in terms of the increased capex, whether it is in terms of the tax rebates on the personal income tax side,” he explained.

Tariff War Adds to Economic Headwinds

Malhotra also recognized that recent international events have added even more to the complexity of the economic situation.

“The recent trade tariff related measures have exacerbated uncertainties clouding the economic outlook across regions, posing new headwinds for global growth and inflation,” he added.

Revised Growth Projection

RBI has reduced its GDP growth estimate for FY 2025-26 from 6.7% to 6.5%. Malhotra promised that the central bank is still committed to non-inflationary growth.

“The domestic growth-inflation trajectory demands monetary policy to be growth supportive, while being watchful on the inflation front. We are aiming for a non-inflationary growth that is built on the foundations of an improved demand and supply response and sustained macroeconomic balance. As before, we shall remain agile and decisive in our response and put in place policies that are clear, consistent, credible and in the best interest of the economy,” he said.

RBI Holds Repo Rate Steady at 6.5% for the 10th Consecutive Meeting

October 9, 2024, 10:25 am

In its monetary policy meeting held on Wednesday, the Reserve Bank of India (RBI) decided to maintain the repo rate at 6.5 percent for the tenth consecutive time. However, the rate-setting panel shifted its stance from ‘withdrawal of accommodation’ to ‘neutral.’

Impact on Borrowers

This decision implies that all external benchmark lending rates linked to the repo rate will remain unchanged, providing relief to borrowers since their equated monthly instalments (EMIs) will not increase.

Nonetheless, lenders may raise interest rates on loans connected to the marginal cost of fund-based lending rate (MCLR), where the full transmission of a 250 basis points hike in the repo rate—implemented between May 2022 and February 2023—has not yet occurred.

Response to Previous Hikes

In reaction to the 250 basis points increase in the policy repo rate since May 2022, banks have adjusted their repo-linked external benchmark-based lending rates (EBLRs) accordingly. The one-year median MCLR of banks has risen by 170 basis points from May 2022 to August 2024.

Inflation Concerns

In August, while keeping the rate unchanged, the RBI’s rate-setting panel expressed concerns regarding persistent food inflation, which could potentially disrupt the disinflation trajectory. The headline inflation rate, as gauged by year-on-year changes in the all-India consumer price index (CPI), increased to 5.1 percent in June from 4.8 percent in May. This rise was primarily attributed to food inflation, which climbed to 8.4 percent in June, compared to 7.9 percent in the previous month. “The food component of retail inflation remains stubborn… food inflation contributed around 70 percent of the overall retail inflation,” stated RBI Governor Shaktikanta Das.

Changes in the Monetary Policy Committee

Last week, the government reconstituted the Monetary Policy Committee by appointing three external members: Ram Singh, Director of the Delhi School of Economics at the University of Delhi; Saugata Bhattacharya, Economist; and Nagesh Kumar, Director and Chief Executive of the Institute for Studies in Industrial Development.

RBI Keeps Repo Rate Unchanged at 6.5% for Ninth Consecutive Time Amid Declining Inflation

August 8, 2024, 1:17 pm

The Reserve Bank of India (RBI) has maintained the repo rate at 6.5% for the ninth consecutive time, as announced by Governor Shaktikanta Das during the Monetary Policy briefing on Thursday.

This marks 18 months of unchanged rates, with the central bank continuing its stance on the withdrawal of accommodation. The growth projection for the current financial year remains steady at 7.2%.

Governor Das raised concerns about the increasing disbursal of top-up home loans and urged lenders to take corrective measures, warning that a decline in deposits could lead to structural liquidity issues for banks.

Inflation is on a declining trajectory, Das noted, with a significant base effect expected to lower overall inflation in the third quarter. However, high food inflation in the first quarter of FY25 is slowing the disinflation process and affecting household inflation expectations. Household consumption is currently supporting a demand turnaround.

Das projected retail inflation at 4.5% for the current fiscal year, assuming a normal monsoon, and expressed optimism that improved agricultural activities would enhance rural consumption. The manufacturing sector is gaining strength due to increasing domestic demand, while the service sector remains buoyant.

The governor also noted that the rupee remained largely range-bound in August and emphasized that the country’s financial system is resilient, bolstered by broader macroeconomic stability.

RBI Policy Panel Keeps Repo Rate Unchanged. Here’s Why?

June 7, 2024, 2:22 pm

Interest rates in the financial system are expected to remain steady, with the Reserve Bank of India (RBI) maintaining the repo rate at 6.4 per cent for the eighth consecutive time. Persistent food inflation continues to keep retail inflation high. The RBI’s Monetary Policy Committee (MPC), which met from June 5 to June 7, also left the monetary policy stance unchanged at “withdrawal of accommodation.”

What is the Repo Rate?

The repo rate, or repurchase rate, is the interest rate at which a country’s central bank lends money to commercial banks. It is a key monetary policy tool central banks use to control liquidity, manage inflation, and stabilize the currency.

Why Was the Rate Kept Unchanged?

The policy panel kept the repo rate unchanged in a 4:2 majority decision as inflation remains above the 4 per cent target. Under the flexible inflation targeting regime, the RBI aims to maintain consumer price-based inflation (CPI) within the 2-6 per cent range. Notably, India’s retail inflation rate was 4.83 per cent in April 2024, slightly down from 4.85 per cent in March 2024.

MPC members appeared cautious about sticky food inflation due to supply-side disruptions caused by ongoing hot weather conditions in many parts of India. The MPC is likely to monitor the progress of the monsoons and the sowing of the summer (Kharif) crop to assess the food inflation trajectory in the second half of 2024, before considering any monetary policy easing.

RBI Projects 7.2% GDP Growth For FY 24-25, Keeps Repo Rate Unchanged At 6.5%

June 7, 2024, 12:28 pm

The Reserve Bank of India (RBI) has adjusted its GDP projection for the fiscal year 2024-2025, increasing it to 7.2% from the previous estimate of 7%. Concurrently, the Consumer Price Index (CPI) inflation forecast stands at 4.5%. These updates were unveiled by RBI Governor Shaktikanta Das during the announcement of policy rates and GDP forecasts.

Governor Das underscored the imperative of a gradual reduction in accommodation to bring inflation in line with the targeted range while fostering economic growth. This prudent approach was reflected in the decision to maintain the Repo Rate at 6.5%. The Monetary Policy Committee (MPC), in a majority decision with four out of six members in agreement, opted to keep the Repo Rate unchanged. Alongside this decision, other key rates such as the standing deposit facility (SDF) rate remained at 6.25%, while the marginal standing facility (MSF) rate and the bank rate stood at 6.75%.

The Governor’s post-policy press conference accentuated the importance of a balanced monetary policy approach. The focus remains on ensuring price stability while supporting economic recovery, a delicate balancing act given the prevailing economic conditions. The decision to maintain the Repo Rate signals the RBI’s cautious stance in navigating the twin objectives of controlling inflation and bolstering economic activity.

The RBI’s revision in GDP forecast reflects a degree of optimism about the economic outlook, aligning with various factors such as improved business sentiments, government initiatives, and global economic recovery trends. However, uncertainties persist, particularly related to global geopolitical developments and domestic factors like food inflation, which remains elevated.

Overall, the RBI’s decision underscores its commitment to fostering sustainable economic growth while maintaining price stability. The cautious approach towards monetary policy adjustments reflects the central bank’s vigilance in navigating the evolving economic landscape, ensuring a balanced and conducive environment for India’s economic trajectory.

Interest Rate Cuts in India Remain Unlikely: Morgan Stanley Report

April 16, 2024, 5:30 pm

Reserve Bank of India (RBI) maintaining the repo rate unchanged for the seventh consecutive time, investment bank Morgan Stanley anticipates a halt in rate cuts. In a report titled ‘India Economics: Rate Cuts Are Now Off the Table,’ authored by economists Upasana Chachra and Bani Gambhir, the focus is on several factors. These include improving productivity growth, a rising investment rate, and inflation persisting above the RBI’s 4 per cent target. Additionally, the expectation of higher interest rates in the US supports the argument for maintaining higher real rates in India. Despite forecasts of a moderation in inflation, it is expected to stay above the RBI’s medium-term target. Given these circumstances, Morgan Stanley emphasizes the importance of the RBI’s disinflationary stance and its reluctance to ease interest rates.

Morgan Stanley revised its forecast, stating that it now anticipates the policy rate to remain stable at 6.5 per cent, contrary to their previous projection of a minor rate reduction cycle starting from the third quarter of 2024. This suggests that real rates would hover around 200 basis points, akin to the average real rates of 190 basis points observed during 2003-2007. Real rates, in essence, represent the disparity between the key interest rate and headline inflation.

The report highlights that a scenario of weaker-than-expected domestic growth or a swifter-than-anticipated moderation in the inflation trajectory could potentially prompt the RBI to initiate a cycle of rate cuts.

On the flip side, heightened geopolitical tensions, which could potentially lead to a deterioration in macroeconomic stability indicators, would necessitate a more cautious monetary policy stance.

Regarding the United States, Morgan Stanley’s Chief US Economist, Ellen Zentner, has adjusted her forecast for the Federal Reserve’s monetary policy trajectory. She now predicts a delayed commencement of the monetary policy easing cycle in the US, with the first rate cut expected in July 2024 (previously June), a reduction from four to three cuts in 2024, and a shallower easing cycle, amounting to a cumulative 175 basis points of easing by 2025 (previously 300 basis points).

In the Indian context, a scenario of higher interest rates and a stronger US dollar would call for a prudent approach from the Reserve Bank of India (RBI).

As expected, the RBI kept the policy repo rate unchanged at 6.50 per cent for the seventh consecutive time. The repo rate denotes the rate at which the RBI lends to other banks.

Retail inflation in India currently lies within the RBI’s comfort range of two to six per cent but remains above the ideal 4 per cent target. In March, it stood at 4.85 per cent. While inflation remains a concern for many countries, including advanced economies, India has largely managed to navigate its inflation trajectory effectively.

Except for the recent pauses, the RBI has raised the repo rate cumulatively by 250 basis points to 6.5 per cent since May 2022 as part of its efforts to combat inflation.

Increasing interest rates is a monetary policy tool typically employed to dampen demand in the economy, thereby aiding in the decline of the inflation rate.

Crisil expects RBI to start lowering repo rates from mid-2024

April 15, 2024, 12:57 pm

The Reserve Bank of India (RBI) has opted to maintain the repo rate unchanged for the seventh consecutive time this month. Crisil, a rating agency, now anticipates the commencement of a rate cut cycle from mid-2024.

The repo rate represents the interest rate at which the RBI lends to other banks. In line with expectations, the RBI has kept the policy repo rate steady at 6.50 per cent, marking the seventh consecutive maintenance of this rate.

“We anticipate the RBI to initiate rate cuts in mid-2024,” stated Crisil in a report, emphasizing that weather conditions and crude oil prices are crucial factors to monitor.

“Food, which was a significant contributor to inflation last year, may see relief if the monsoon returns to normalcy this year, as early weather forecasts indicate,” the report added.

Given the uneven inflation trends, the RBI’s monetary policy committee is awaiting clearer indications of easing towards the 4 per cent inflation target. The robust domestic growth momentum has provided room for such actions.

Although retail inflation in India falls within RBI’s two-six per cent comfort level, it exceeds the ideal 4 per cent scenario, standing at 4.85 per cent in March. Despite inflation concerns worldwide, India has managed to navigate its inflation trajectory quite effectively.

With the exception of recent pauses, the RBI has raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in its efforts to combat inflation.

Increasing interest rates is a monetary policy measure that typically curbs demand in the economy, thereby aiding in the decline of the inflation rate.

Regarding inflation, Crisil anticipates consumer price index (CPI)-linked inflation to ease to 4.5 per cent in the current fiscal year 2024-25 from the estimated 5.5 per cent of the previous year.

“A normal monsoon and improved farm output should contribute to moderating inflation this fiscal year. A non-inflationary budget focusing on asset creation rather than direct cash support is favorable for core inflation,” the report highlighted.

Meanwhile, the RBI has maintained its inflation projection for 2024-25 at 4.5 per cent, with projections of 4.9 per cent for Q1, 3.8 per cent for Q2, 4.6 per cent for Q3, and 4.5 per cent for Q4. However, it acknowledged that the inflation outlook will largely be influenced by uncertainties surrounding food prices, including indications of a normal monsoon alongside an increase in incidents of climate shocks.

RBI expands obligation for Key Fact Statement for all retail, MSME loans

February 8, 2024, 12:39 pm

The Reserve Bank of India (RBI) has expanded the obligation for a Key Fact Statement (KFS) to encompass all retail and MSME loans, aiming to improve transparency in the lending sector.

The KFS serves as a document elucidating lending terms, offering key information on a loan agreement, including the comprehensive cost of the loan in a clear and comprehensible format.

Currently, loans to borrowers encompass various fees and charges, such as processing fees and documentation charges. Governor Shaktikanta Das highlighted the need for transparency in disclosing such details, emphasizing the extension of the KFS requirement to cover all retail and MSME loans.

This move intends to enhance transparency and empower borrowers to make well-informed decisions. The decision aligns with the Monetary Policy Committee’s unanimous choice to maintain the policy repo rate at 6.5 percent during its February review meeting, marking the sixth consecutive status quo.

The repo rate signifies the interest rate at which the RBI lends to other banks. Governor Das affirmed that the MPC, with a majority of 5 out of 6 members, prioritizes the withdrawal of accommodation to ensure progressive alignment of inflation with the target while supporting economic growth.

The RBI’s bi-monthly monetary policy committee meeting, held over three days, typically involves deliberations on interest rates, money supply, inflation outlook, and various macroeconomic indicators.

RBI Holds Steady: Policy Rate Unchanged for the 5th Consecutive Time

December 8, 2023, 11:36 am

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) decided to stick with stability, keeping the policy repo rate at 6.5 percent during its December review meeting. This decision was unexpected. This is the central bank’s fifth consecutive decision to keep interest rates unchanged.

RBI Governor Shaktikanta Das, addressing the media, cited declining inflation as a key factor behind the decision to maintain the status quo in the policy stance. While retail inflation in India has eased, October’s consumer price index (CPI) touched a four-month low of 4.87 per cent, still above the ideal 4 per cent scenario.

Das highlighted that the MPC, with a majority of 5 out of 6 members, is committed to withdrawing accommodation to ensure that inflation progressively aligns with the target while supporting growth. This stance is in line with the central bank’s ongoing efforts to balance economic stability.

The Governor’s remarks also touched upon India’s robust GDP growth, which stood at 7.6 per cent during the July-September quarter, making it the fastest-growing major economy. Despite global economic challenges, India’s economic resilience has been notable.

This three-day bi-monthly meeting marks the end of the year for the RBI, with the MPC deliberating over interest rates, money supply, inflation outlook, and various macroeconomic indicators. The central bank’s decision to maintain the status quo reflects a cautious approach, possibly influenced by a relative decline in inflation, barring recent spikes.

The repo rate, unchanged at 6.5 per cent for the fourth consecutive meeting, is a critical tool in the RBI’s fight against inflation. Despite concerns about rising inflation in many countries, India has managed to navigate its inflation trajectory effectively.

The RBI’s decision to hold the repo rate steady suggests a nuanced approach to monetary policy, considering the delicate balance needed to support economic growth while keeping inflation in check. As we head into the new year, the financial landscape remains dynamic, with the RBI’s moves closely watched for their impact on various sectors of the economy.

Experts expect status quo in interest rates from ongoing RBI monetary policy

August 9, 2023, 11:55 am

The results of the third monetary policy committee meeting of the Reserve Bank of India will be made public on Thursday morning.

RBI typically conducts six bi-monthly meetings in a financial year, where it decides interest rates, money supply, inflation outlook, and various macroeconomic indicators. The ongoing three-day meeting started on Tuesday.

The monetary policy committee of the central bank unanimously decided to maintain the repo rate at 6.5 percent at its previous meeting in early June, as most analysts had predicted. The repo rate was paused by the RBI at its meeting in April as well. The interest rate at which the RBI lends money to other banks is known as the repo rate. The central bank may have decided to again pause the key interest rate due to the ongoing decline in inflation, which is currently at an 18-month low. Many nations, including advanced economies, have concerns about inflation, but India has done a good job of controlling its trajectory.

Barring the April pause, the RBI raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.

Industry groups applaud RBI’s rate increase

December 7, 2022, 3:17 pm

Two trade associations, FICCI and PHD Chamber, have praised the Reserve Bank of India’s decision to raise the repo rate. FICCI believes that this pragmatic approach will foster growth, and PHD Chamber believes that, given the sharp decline in inflation, a calibrated strategy to maintain economic growth will be essential to luring investments.

In a statement from the Federation of Indian Chambers of Commerce and Industry (FICCI), its President Sanjiv Mehta said, “The Reserve Bank’s policy action of hiking the policy repo rate by 35 bps was widely anticipated as the war against inflation is still far from over. Retail inflation has remained above the Central Bank’s tolerance threshold of 6 percent through the year 2022.” He said, “Core inflation remains sticky, and uncertainty continues to surround the RBI’s near-term inflation outlook given the complex geo-political developments in Europe, the recurrence of adverse climate-related events, and the still high commodity prices globally.”

PHD Chamber of Commerce and Industry Senior Vice President Saket Dalmia said, “We welcome the increase in repo rate by 35 basis points; however, this will have an impact on the sentiments of producers and consumers, as the cost of funds is going up month after month. As inflation is cooling down significantly, a calibrated approach to maintaining economic growth would be vital to attracting investments.”

Efforts to revive demand and manufacturers’ attitudes toward increased production will, according to Saket Dalmia, be vital at this point.

Mehta also added, “While the consumer price index inflation projection has been maintained at 6.7 percent for 2022-23 and some early signs of inflation cooling down on a sequential basis are coming to the fore, we need to see this trend emerge on a durable basis for the RBI to indicate a change in stance.”
“Furthermore, while the Indian economy remains resilient, the RBI has revised downward its GDP growth forecast for 2022-23 to 6.8 percent from 7 percent in the last monetary policy announcement,” Mehta said, adding that, “Even at this slightly lower rate of growth, India continues to be among the fastest growing economies globally, and we are encouraged by the Governor’s statement that liquidity will be made available for productive activities as required so that the growth impulses get nurtured.”

RBI raises the repo rate by 50 basis points to a three-year high of 5.9%, with GDP expected to grow at 7%

September 30, 2022, 11:27 am

RBI Governor Shaktikanta Das announced on Friday that the Monetary Policy Committee (MPC) of the central bank raised the repo rate, or key lending rate, by 50 basis points (bps) to a three-year high of 5.9 percent. The country is expected to have a real GDP of 7%, which has been reduced from 7.25% previously predicted. “We are awake, ever vigilant, ever striving,” the RBI Governor said during his speech, highlighting the steps taken to address global challenges and emphasising the resilience of the national economy.

“The global economy is in the eye of storm but India has withstood shocks over the last two years,” RBI governor said, adding that the inflation is hovering around 7 per cent and is expected to remain around 6 per cent in the second half of the year.

“Daunting challenges await us,” he said, referring to the Ukraine war, which began in February. “A series of measures have been implemented since April 2022 in the backdrop of geopolitical tensions, which have also hampered global supply.” “The inflation rate is expected to be 6.7%,” he said. “In the face of current conditions, the MPC must remain alert and nimble.” In the first quarter, GDP increased by 13.5% year on year, he said. “While real GDP growth in the first quarter of this year was lower than expected, it was still 13.5 percent, possibly the highest among the major global economies,” he added.

Markets opened in the red ahead of the critical statement, with the Sensex at 56,254. The Nifty 50 index of the National Stock Exchange (NSE) was down 0.3% at 16,776. A Reuters poll conducted ahead of the statement found that a slim majority of economists expected a 50 basis point increase, with some expecting a smaller 35 basis point increase.

Last month, the MPC announced another 50 basis point increase in the repo rate (one basis point is one hundredth of a percentage point), bringing it to 5.4%, a level last seen in September 2019. It was the MPC’s third consecutive rate hike since its unexpected May 2022 meeting. The key committee also maintained its inflation and GDP growth projections for fiscal year 2022-23 at 6.7% and 7.2%, respectively.

According to reports, the MPC has raised the key policy rate by 190 basis points since May to cool domestic retail inflation, which has remained above the RBI’s upper tolerance limit of 6% since January.

“The inflation trajectory remains clouded with uncertainties arising from continuing geopolitical tensions and nervous global financial market sentiments. In this backdrop, MPC was of the view that persistence of high inflation, necessitates further calibrated withdrawal of monetary accommodation to restrain broadening of price pressures, anchor inflation expectations and contain the second round effects. This action will support the medium-term growth prospects of our economy,” Shaktikanta Das stressed on Friday.