New Delhi10 minutes ago
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The Reserve Bank of India ie RBI decided not to increase the repo rate on Thursday. That is, the interest rate will remain at 6.50%. Earlier, RBI had increased the repo rate 6 times in a row. Before today’s RBI decision, experts were speculating that the repo rate could be increased by 0.25%. This is because recently all the central banks of the world including Federal Reserve, European Central Bank, Bank of England had increased the interest rates.
What happened: The Reserve Bank stopped the hike after increasing the interest rates for 6 consecutive times in the last one year.
RBI has increased interest rates by 2.50% in 6 times in 2022-23. Monetary policy meets every two months. The first meeting of the last financial year was held in April. Then the RBI had kept the repo rate constant at 4%, but called an emergency meeting on 2 and 3 May and increased the repo rate by 0.40% to 4.40%. This change in the repo rate took place after 22 May 2020.
After this, in the meeting held on 6 to 8 June, the repo rate was increased by 0.50%. This increased the repo rate from 4.40% to 4.90%. Then in August it was increased by 0.50%, taking it to 5.40%. Interest rates went up to 5.90% in September. Then reached 6.25% in December. After this, in February 2023, the interest rates were increased from 6.25% to 6.50%.
Why did not change: RBI wants to maintain the recovery of the economy, so did not increase the rates
RBI Governor Shaktikanta Das said, to maintain the ongoing recovery in the economy, we have not made any change in the policy rate, but if needed, we will take steps according to the situation. India’s economy remains strong amid all the global tensions.
What will happen with this decision: Loans will not become expensive due to no change in repo rate, EMI will also not increase
RBI has a powerful tool to fight inflation in the form of repo rate. When inflation is very high, RBI tries to reduce the money flow in the economy by increasing the repo rate. If the repo rate is high, the loan that banks get from RBI will be expensive. In return, banks make loans costlier for their customers. This reduces money flow in the economy. If the money flow decreases, then demand decreases and inflation decreases.
Similarly, when the economy goes through a bad phase, there is a need to increase money flow for recovery. In such a situation, RBI reduces the repo rate. Due to this, the loan from RBI becomes cheaper for the banks and the customers also get the loan at a cheaper rate. Let us understand with this example. When economic activity came to a standstill during the Corona period, there was a decrease in demand. In such a situation, RBI increased the money flow in the economy by reducing the interest rates.
What will be the effect on the stock market: stability will come, realty companies will get the benefit of rates
After this decision of RBI, there was a boom in public sector banks and realty stocks. PNB’s share saw a gain of about 2% while Bank of Maharashtra, SBI, Punjab and Sindh Bank saw a gain of more than 1%. IIFL Vice President Anuj Gupta said, ‘RBI has taken this step to bring stability in the market. In such a situation, there can be a boom in the market in the coming days.
Shishir Baijal, chairman and managing director of Knight Frank India, said, “Along with inflation, any further hike in repo rate and lending rate could potentially reduce the spending power of consumers. Had this happened, it would have affected India’s economic growth. The slowness of economic growth could also affect the stock market.
Inflation will increase or decrease: There can be relief from inflation, RBI has reduced the inflation estimate
In its press conference today, the RBI has informed about the cut in inflation estimates. That means there can be relief from inflation in the coming days. On the other hand, according to Cyrus Modi, founder and managing partner of Viceroy Properties, there are signs of improvement in the economy but the central bank wants to keep inflation under control.
In such a situation, it is expected that going forward, RBI will stop the rates at this level and start reducing the rates from the calendar year 2025. The central bank aims to strike a balance between the growth rate and inflation. We are hopeful that a regular monsoon year will help bring down inflation which in turn will bring down interest rates.
Inflation remains above RBI’s target
Regarding inflation, the RBI governor said that this inflation is still above the target of RBI. The RBI governor described India’s banking and NBFC sector as very strong. He also expressed hope of improving rural demand on the back of a better rabi crop.
Regarding the rupee, the RBI governor said that the movement of the rupee has been very systematic in 2022 and it is expected to remain intact in 2023 as well. He said that maintaining the stability and strength of the rupee is the constant focus of the RBI.
Know what the inflation figures say?
1. Retail inflation 6.44% in February
Retail inflation in the country has come down to 6.44% in the month of February. In January 2023, it was at a three-month high of 6.52% and in December 2022 at 5.72%. Three months ago in November 2022, retail inflation was 5.88%. Last year in February 2022 it was 6.07%.
2. The wholesale inflation rate stood at 3.85%
The Wholesale Inflation Rate (WPI) has come down to 3.85% in February. This is the lowest level in 25 months. The wholesale inflation rate in January 2023 was 4.73%. In December, the wholesale inflation rate was 4.95%. Due to the cheapness of items like potato, onion, fuel, there has been a decline in inflation.
How does inflation affect?
Inflation is directly related to purchasing power. For example, if the inflation rate is 7%, then Rs 100 earned will be worth only Rs 93. Therefore, one should invest keeping in view the inflation. Otherwise the value of your money will decrease.