{"id":298833,"date":"2024-06-08T19:16:12","date_gmt":"2024-06-08T13:46:12","guid":{"rendered":"https:\/\/forumias.com\/blog\/?p=298833"},"modified":"2024-06-08T19:16:12","modified_gmt":"2024-06-08T13:46:12","slug":"repo-rate-kept-unchanged","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/repo-rate-kept-unchanged\/","title":{"rendered":"Repo Rate Kept Unchanged"},"content":{"rendered":"

Source<\/strong>-This post on Repo Rate Kept Unchanged<\/strong> has been created based on the article \u201cSticky inflation: Why is RBI refusing to cut interest rates?<\/strong>\u201d published in \u201cThe Indian Expres<\/strong>s\u201d on 8 June 2024.<\/p>\n

UPSC Syllabus-GS Paper-3<\/strong>– Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.<\/p>\n

Context<\/strong>-The article discusses reasons behind the Reserve Bank of India’s (RBI) decision to keep the benchmark repo rate unchanged for the eighth consecutive time during its latest bi-monthly monetary policy review.<\/p>\n

What is a Repo Rate? <\/strong><\/h2>\n

Definition<\/strong>-The repo rate is the interest rate at which the RBI lends money to commercial banks.<\/p>\n

Impact-<\/strong>A) A lower repo rate incentivizes economic activity by making it cheaper for banks to borrow from the RBI and lend to customers.<\/p>\n

B) A higher repo rate disincentivizes economic activity by making it costlier for everyone in the economy to borrow money. Movements in the repo rate have a significant impact on the EMIs (Equated Monthly Installments) paid for car, home, or business loans.<\/p>\n

What is the goal of RBI\u2019s monetary policy? <\/strong><\/h2>\n

1) Price Stability<\/strong>-The primary goal of RBI’s monetary policy is to maintain price stability in the economy by targeting an inflation rate of 4%. This goal is mandated by the law.<\/p>\n

2) Promote Economic Growth<\/strong>-When the economy needs a lift, such as after the COVID pandemic, the RBI lowers the repo rate. This makes borrowing money easier for both consumers and producers, encouraging spending.
\nConversely, when inflation rises significantly above 4%, like during the Russia-Ukraine conflict, the RBI raises the repo rate to lessen the demand for borrowing money, thus reducing excessive spending fueled by credit.<\/p>\n

Read more- Monetary Policy \u2013 Basics Simplified<\/a><\/p>\n

What are the reasons for not cutting interest rates?<\/strong><\/h2>\n

Despite the retail inflation rate coming closer to the 4% target and staying within the RBI’s comfort zone of 2-6% since September 2023, the RBI has not changed the repo rate since February 2023. The reasons for this are:<\/p>\n

1) Sticky Inflation-<\/strong> While the inflation rate has dropped, it hasn’t reached 4% since January 2021, and the decline has been slow. The RBI is concerned about this persistent inflation, which stayed around 5% in the first four months of 2024.<\/p>\n

2) Commitment to Durable Inflation Targeting<\/strong>– The RBI wants to keep inflation around 4% consistently and doesn’t reduce rates immediately when inflation falls below this target for just one month. The RBI believes that any future drop in inflation below 4% will only be temporary.<\/p>\n

3) Strong Economic Growth<\/strong>– India’s GDP growth rate has been unexpectedly strong recently, leading the RBI to raise its forecast for the current financial year from 7% to 7.2%. With this strong economic growth, it’s unlikely that the repo rate is hindering India’s economic activity.<\/p>\n

4) Fiscal Deficit Concerns-<\/strong> The RBI’s choice might be affected by the upcoming Union Budget and how much the government plans to borrow from the market. This borrowing could impact inflation or interest rates.<\/p>\n

Question for practice<\/strong><\/p>\n

What is the goal of RBI\u2019s monetary policy? What are the reasons for not cutting interest rates?<\/p>\n","protected":false},"excerpt":{"rendered":"

Source-This post on Repo Rate Kept Unchanged has been created based on the article \u201cSticky inflation: Why is RBI refusing to cut interest rates?\u201d published in \u201cThe Indian Express\u201d on 8 June 2024. UPSC Syllabus-GS Paper-3– Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment. Context-The article discusses reasons behind… Continue reading Repo Rate Kept Unchanged<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230],"tags":[216,8184,10500],"class_list":["post-298833","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","tag-gs-paper-3","tag-indian-economy","tag-indian-express","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/298833","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=298833"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/298833\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=298833"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=298833"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=298833"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}