Reserve Bank of India Maintains Key Lending Rate at 6.5%

Reserve Bank of India Maintains Key Lending Rate at 6.5%

The Reserve Bank of India (RBI) has announced that the key lending rate will remain unchanged at 6.5 percent. RBI Governor Shaktikanta Das made the decision, with a focus on controlling inflation and expectations of a potential increase in food prices in the coming months, despite better than expected economic growth.

This marks the fifth consecutive time that the RBI has kept the repo rate, a crucial lending rate, steady. The repo rate determines the interest rate at which the RBI lends to other banks, indicating that loan interest rates are also likely to remain unchanged.

Governor Das acknowledged that the global economy is displaying signs of recovery. However, while headline inflation has decreased compared to last year, it still exceeds targets in many countries, and core inflation remains stubbornly high.

Highlighting the resilience and momentum of the Indian economy, Das emphasized that the GDP in the second quarter surpassed all forecasts, and fiscal consolidation is on track. The external balance is also manageable, and the RBI aims to build on these foundations.

The announcement of the unchanged key rate had a positive impact on the market, as the Nifty reached 21,000 for the first time.

The RBI has maintained its policy stance of gradually reducing accommodation to align inflation with the committee’s target while supporting economic growth.

Since May 2022, the RBI has raised the repo rate by a total of 250 basis points in order to combat rising inflation. Although inflation dropped to a four-month low of 4.87 percent in October, it is expected to remain above the RBI’s medium-term target of 4 percent for some time.

India’s economy grew at a rate of 7.6 percent in the July-September quarter, surpassing the polled median of 6.8 percent and the RBI’s estimate of 6.5 percent. This growth was attributed to government spending and manufacturing, leading to optimism that the country’s economy will outperform its own projections for the full year.

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