The Reserve Bank of India’s Monetary Policy Committee (MPC) wrapped up its three-day deliberations today, deciding to maintain the repo rate at 6.5 per cent for the fourth consecutive time this fiscal year and the tenth time overall. Despite global market movements and the US Federal Reserve’s recent 50-basis-point rate cut, RBI Governor Shaktikanta Das confirmed the decision to keep the rate unchanged. 

The repo rate is the interest rate at which the RBI lends money to commercial banks. Changes in this rate directly influence the interest rates on loans and deposits offered by banks. A stable repo rate often translates to predictable EMI (Equated Monthly Instalment) payments for borrowers.

Impact on loan EMIs

• Home Loans: For individuals with floating interest rates on home loans, the unchanged repo rate means that EMIs will likely remain stable in the near term. Borrowers can breathe a sigh of relief as there won’t be immediate pressure to adjust their monthly payments. 
• Personal and Auto Loans: Similar to home loans, personal and auto loans linked to the repo rate will also see no immediate changes in EMIs. This stability can help borrowers manage their finances more effectively without the fear of sudden increases.
• Fixed-Rate Loans: For borrowers with fixed-rate loans, the impact of the repo rate remains minimal in the short term.

Key outcomes of the meeting

• The MPC decided to keep the repo rate steady at 6.5 per cent, with a majority of 5 out of 6 members supporting this decision.
• The real GDP growth rate for FY25 is projected at 7.2 per cent.
• RBI Governor Shaktikanta Das mentioned that food inflation pressures may ease due to favourable conditions from the kharif sowing season and good soil moisture.
• Change in Policy Stance: The MPC changed its policy stance from ‘withdrawal of accommodation’ to ‘neutral.’
• The committee noted weaker corporate profitability and government expenditure as factors influencing the growth outlook, leading to a downward revision of growth expectations for the June quarter from 7.3 per cent to 7.1 per cent.
• Governor Das highlighted downside risks to the economy, including geopolitical tensions, particularly in West Asia and financial market volatility.
• The MPC’s discussions included expectations for inflation to remain moderate but acknowledged that moderation might be “slow and uneven”.

The latest Fitch Ratings has cited a recovery in consumer spending and increased investment. File photo
| Photo Credit: The Hindu

Fitch Ratings on Tuesday, June 18, 2024, raised India’s growth forecast for current fiscal to 7.2 per cent, from 7 per cent projected in March, citing a recovery in consumer spending and increased investment.

For the fiscal years 2025-26 and 2026-27, Fitch projected growth rates of 6.5 per cent and 6.2 per cent, respectively.

“We expect the Indian economy to expand by a strong 7.2 per cent in FY24/25 (an upward revision of 0.2 pp from the March GEO),” Fitch said in its global economic outlook report.

Fitch’s estimates are in line with that of RBI which earlier this month projected Indian economy to expand 7.2 per cent in the current fiscal on the back of improving rural demand and moderating inflation.

Investment to continue, consumer spending to pick up

Investments will continue to rise but more slowly than in recent quarters, while consumer spending will recover with elevated consumer confidence, it said.

Fitch said purchasing managers survey data point to continued growth at the start of the current financial year.

It said signs of the coming monsoon season being more normal should support growth and make inflation less volatile, though a recent heatwave poses a risk.

“We expect growth in later years to slow and approach our medium-term trend estimate,” it said, adding growth will be driven by consumer spending and investment.

The Indian economy grew 8.2 per cent in the last fiscal (2023-24), with a 7.8 per cent expansion in March quarter.

Inflation, Fitch expects, will decline to 4.5 per cent by end 2024 and average 4.3 per cent in 2025 and 2026.

Fitch said it expects the RBI to cut policy interest rates by 25 basis points this year to 6.25 per cent.