RBI’s Decision to Hold Repo Rate Leaves Borrowers and Markets Disappointed
In its latest monetary policy announcement, the Reserve Bank of India (RBI) has once again opted to maintain the repo rate at 6.5%, leaving millions of borrowers disappointed. The decision, announced by RBI Governor Shaktikanta Das, comes amidst high expectations for a rate cut that could have provided relief to borrowers grappling with rising EMIs and inflation.
No Change in Repo Rate for 10 Consecutive Reviews
This marks the 10th consecutive time the RBI has decided against altering the repo rate, despite mounting pressure from consumers and sectors like real estate and the stock market. The repo rate, which influences the cost of borrowing for banks, was last revised in February 2023, when it was raised by 25 basis points to the current 6.5%.
Implications for Borrowers
With the repo rate unchanged:
- Home Loans: Borrowers will continue to pay higher EMIs for their home loans.
- Car Loans and Personal Loans: These too will remain costly, as banks are unlikely to reduce interest rates.
- Inflation Impact: The lack of a rate cut means consumers must continue to shoulder the dual burden of high inflation and expensive credit.
Policy Committee’s Decision
The RBI’s Monetary Policy Committee (MPC), which comprises six members, reached its decision with four members voting in favor of maintaining the current rates. The primary rationale appears to be ensuring financial stability amidst global economic uncertainties.
Governor Shaktikanta Das emphasized that maintaining the repo rate at 6.5% aligns with RBI’s focus on controlling inflation while supporting economic growth.
Expectations Versus Reality
In the previous MPC meeting in October 2024, the RBI hinted at the possibility of rate cuts in the near future. This raised hopes among borrowers and industries. However, the latest decision has dashed those expectations, disappointing not only the general public but also real estate developers and stock market investors who were anticipating a positive signal for growth.
Last Policy Meeting for Governor Shaktikanta Das
This policy review also holds historical significance as it marks the final meeting presided over by Governor Shaktikanta Das, whose term concludes on December 10, 2024. During his tenure, the repo rate underwent significant fluctuations, especially during the economic recovery phase post-COVID-19.
Impact on Sectors
- Real Estate:
The sector, which heavily relies on affordable loans, is likely to face continued challenges in attracting homebuyers. Developers had hoped for a rate cut to revive demand, but the RBI’s decision keeps affordability concerns intact. - Stock Market:
Investors were anticipating a rally spurred by a rate cut. However, the announcement led to a mixed response, with banking and real estate stocks witnessing slight declines. - General Consumers:
Middle-class borrowers, already battling rising inflation, are particularly affected, as their disposable incomes shrink further with high loan repayments.
While the RBI remains steadfast in its approach to controlling inflation and ensuring financial stability, this decision underscores the importance of policy measures beyond interest rate cuts to boost consumer confidence and economic growth.
Borrowers and industries must now wait until 2025 for the next policy review, hoping for a favorable change in rates.
