RBI Interest Rate 2024: Reserve Bank of India (RBI) has maintained a steady repo rate for 20 months, despite the US cutting rates and inflation in India falling below 4%. The latest decision from the RBIs Monetary Policy Committee (MPC), announced after a meeting from October 7-9, kept the repo rate unchanged at 6.5%. This marks the tenth consecutive time the rate has remained steady.In a 5:1 majority vote, the MPC rejected any rate cut, though new member Nagesh Kumar, Director and CEO of the Institute for Studies in Industrial Development, voted to reduce the repo rate by 25 basis points.Why has RBIs decided not to cut rates despite global trendsThe RBIs newly reconstituted MPC voted to keep interest rates steady, with five members favoring this decision and one member advocating a reduction. The unchanged repo rate, currently at 6.5%, signals that the RBI is focusing on domestic factors, particularly inflation and financial stability, rather than following global trends such as the US Federal Reserves rate cuts.Why did the MPC keep the Repo Rate unchangedRBI Governor Shaktikanta Das highlighted that inflation was expected to spike in September, mainly due to unfavorable base effects and rising food prices. He also warned that unexpected weather events and geopolitical tensions pose significant risks to inflation.Analysts echoed these concerns. Suman Chowdhury, Executive Director & Chief Economist at Acuité Ratings & Research, pointed out that despite the CPI headline remaining below 4% recently, worries about food inflation persist, particularly due to geopolitical conflicts and erratic weather patterns.The conflict in West Asia, with rising tensions between Israel and Iran, could further spike global oil prices, adding uncertainty to the inflation outlook. Additionally, key economic indicators like the PMI indices have dipped to multi-month lows, and the core sector output has contracted for the first time in 42 months.Inflation concerns and the shift to a neutral stanceDespite expectations for a rate cut following the US Feds actions, the RBI opted for a cautious approach, emphasizing domestic inflation stability and concerns over declining individual savings as a percentage of GDP.The policy stance was changed from withdrawal of accommodation to neutral, signaling the RBIs intention to provide more flexibility in responding to evolving economic conditions. Anu Aggarwal, Head of Corporate Banking at Kotak Mahindra Bank, noted that the shift reflects optimism for Indias inflation outlook and positions the RBI to respond dynamically to future developments.Inflation and GDP projections remain steadyThe MPC kept its inflation forecast unchanged at 4.5% for FY2025, despite rising food prices. The RBI Governor attributed the recent inflationary pressure to reduced production of key staples like onions, potatoes, and chana dal, but projected a moderation in Q4 due to the kharif harvest and ample buffer stocks.Meanwhile, the GDP growth projection remains steady at 7.2%, with government-led investment expected to pick up in Q2 after a slowdown in Q1 due to general elections.What does this mean for borrowersAs the repo rate remains unchanged at 6.5%, lending rates tied to the repo rate will stay stable, providing relief to borrowers as their equated monthly installments (EMIs) wont increase. However, there may be a rise in rates for loans linked to the marginal cost of fund-based lending rate (MCLR), where banks havent fully transmitted the 250-basis-point hike from May 2022 to February 2023.When can we expect a rate cutAnalysts are divided on when the RBI will finally cut rates. Some, like CareEdge Ratings, predict a possible shallow rate cut of 50 basis points later in the fiscal year if food inflation moderates. HSBC expects 25-basis-point cuts in the December 2024 and February 2025 meetings, while Bank of America foresees a 100-basis-point cut by December 2025, with the first reduction expected in December 2024.
