Repo Rate Remains Fixed At 6.5 Per Cent; 5 Ways Decision Of RBI Will Affect The Middle-Class

The recent decision of the Reserve Bank Of India (RBI) to keep the repo rate unchanged has created a lot of buzz on the internet. While announcing the bi-monthly policy, Governor of RBI, Shaktikanta Das said that the Monetary Policy Committee (MPC) had unanimously decided to keep the policy rate fixed at 6.5%. This has happened for the second time consecutively the repo rate has remained unchanged.

The Times Of India quoted Das saying, “MPC voted unanimously to leave the repo rate unchanged at 6.5%. MPC voted five members to one to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target.”

The marginal standing facility and bank rates stand at 6.75%, and the Standing Deposit Facility (SDF) would remain at 6.25%.

We spoke to Shavir Bansal, a finance content creator who runs a page, Bekifaayati, on Instagram, to understand what repo rate is. We also asked her how it would affect the Indian middle class if it remains unchanged.

What Is Repo Rate?

Repo rate of repurchase rate is a tool used by the RBI to regulate the flow of money in India and manage the economy. It is the rate of interest at which a central bank would lend money to commercial banks in India.

This rate serves a crucial purpose for the RBI facilitating it to regulate liquidity in the banking system. Hence, it allows it to control the inflation rate of the country.

The repo rate is inversely proportional to inflation. For example, if the RBI wants to reduce or control inflation, it would increase the repo rate.

When the repo rate increases, it will increase the cost at which commercial banks borrow money from the central bank. Hence, they will increase the rate of interest on loans and other financial commodities. It affects consumers directly because they will pay a higher amount of interest on their loans by cutting down their expenses.

Bansal said that if RBI decreases the repo rate, it will increase the spending of consumers, which can help in the economic growth of the country. It will also increase the supply of money among citizens.

Unchanged Repo Rate Affects Citizens Of India And Inflation

The finance content creator said that the RBI keeping the repo rate unchanged signals its stance on keeping inflation in check without compromising financial stability (Reasons Why Women Must Be Financially Independent). He added, “The RBI seems to be more concerned about inflationary risks than growth risks, which is always a good sign.”

The RBI also monitors macro factors like Goods and Services Tax (GST) collection, and economic global developments to ensure long-term economic stability and growth through a measured approach.

He added, “The withdrawal of ₹2,000 notes has likely contributed to surplus liquidity in the banking system.” Therefore, keeping the repo rate unchanged is RBI’s commitment towards maintaining a balanced approach to monetary policies.

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Relation Of Unchanged Repo Rate With FDs, Borrowing Costs, And Loan

Bansal said that keeping the repo rate unchanged is a positive decision, especially if someone is a borrower. It will contribute to the economic stability and growth of the country.

It will stabilise interest rates and stimulate credit demands. Thus, this will also benefit small business owners, who are striving to overcome the losses induced due to the pandemic and struggling with the high borrowing costs. The rate of interest on Fixed Deposits (FDs) (Investment Options For Women), home loans and borrowing costs will remain same.

The real estate sector will also benefit from this decision because the home loan interest rates will remain fixed. He added, “Unless there are significant changes in the inflation, growth, or global volatility, it is anticipated that the rates will remain stable for an extended period.

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