The Reserve Bank of India (RBI) maintained the status quo in the repo rate for the seventh time this month. The rating agency Crisil now expects the rate cut cycle to begin from mid-2024.
The repo rate is the rate of interest at which the RBI lends to other banks.
Along anticipated lines, RBI kept the policy repo rate unchanged at 6.50 per cent, the seventh time in a row.
"We expect the RBI to initiate rate cuts in mid-2024," Crisil said in a report, with a rider that weather and crude prices are key monitorables.
"Food, the pain point for inflation last year, could ease if monsoon turns normal this year, as early weather forecasts suggest," it asserted.
Given the uneven inflation trends, the monetary policy committee of the RBI is awaiting clearer signs of easing towards the 4 per cent inflation target. "Strong domestic growth momentum has provided it space to do so."
Retail inflation in India is in RBI's two-six per cent comfort level but is above the ideal 4 per cent scenario. In March, it was 4.85 per cent. Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory quite well.
Barring the latest pauses, the RBI raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation.
Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
On inflation, Crisil expects consumer price index (CPI)-linked inflation to soften to 4.5 per cent in the current financial year 2024-25 from an estimated 5.5 per cent previous year.
"Normal monsoon and healthier farm output should help moderate inflation this fiscal. A non-inflationary budget that focusses on asset-creation rather than direct cash support bodes well for core inflation."
Meanwhile, RBI retained its inflation projection for 2024-25 at 4.5 per cent with Q1 at 4.9 per cent, Q2 at 3.8 per cent, Q3 at 4.6 per cent, and Q4 at 4.5 per cent. However, it noted that the outlook for inflation will largely be shaped by food price uncertainties (indications of a normal monsoon on one side while increasing incidence of climate shocks on other side).
FAQs
The rating agency Crisil now expects the rate cut cycle to begin from mid-2024. The repo rate is the rate of interest at which the RBI lends to other banks. Along anticipated lines, RBI kept the policy repo rate unchanged at 6.50 per cent, the seventh time in a row.
When repo rate is changed by RBI? ›
When the RBI wants to make more money available, it lowers the repo rate. This lowers the cost of borrowing money from the RBI for financial institutions. The repo rate is increased by the RBI to discourage banks from borrowing money and thereby lower the money supply.
Why RBI cuts repo rate? ›
The repo rate is a tool that the RBI uses to control the flow of money in the economy. Thus, a repo rate increase or decrease affects the cost of funds available within the economy. So, the repo rate decrease has implications for your home loan interest rate.
What is the repo rate in South Africa? ›
The South African Reserve Bank (SARB) is expected to keep the repo rate at 8.25% when its Monetary Policy Committee (MPC) meets on Thursday amid lingering risks to inflation and a cautious approach by major central banks to easing.
What is likely to happen if the reverse repo rate is raised by RBI by 100 basis points? ›
Now, if the country's economy is experiencing inflation, RBI will increase the reverse repo rate to limit borrowings by commercial banks. This, in turn, will reduce their lending capacity and keep inflation in check.
Will the repo rate decrease in 2024? ›
The Reserve Bank of India (RBI) kept the repo rate steady at 6.50% for the seventh consecutive time. Crisil forecasts rate cuts starting from mid-2024, contingent upon weather and crude prices. RBI is monitoring inflation, expected to ease to 4.5% in 2024-25, supported by a normal monsoon and asset-focused budget.
What is the monetary policy rate in 2024? ›
RBI MPC Meeting 2024 Highlights: The RBI decided to keep the key policy repo rate unchanged at 6.5% in its April monetary policy along with maintaining the stance at 'withdrawal of accommodation'. India's real GDP growth for FY25 is projected at 7%.
What is the RBI policy for February 2024? ›
The Reserve Bank of India kept its key repo rate on hold at 6.50% in the February 2024 meeting as expected, while keeping its policy stance of “withdrawal of accommodation” unchanged. There was some expectation in the market that the RBI would soften its tight liquidity stance at this meeting.
What is the effect of cutting repo rate? ›
When the repo rate decreases, what does that mean for you? Because other lending and interest rates are linked to the repo rate, a decrease in the repo rate will mean that the interest on your house and vehicle payments or savings and investment products may decrease too.
What is the current repo rate in India? ›
Banks obtain loans from the Reserve Bank of India (RBI) by selling qualifying securities. The current Repo Rate in India, fixed by RBI is 6.50%. As per the latest news, the repo rate remained unchanged, as announced on 8th February 2024.
Christie Viljoen – PwC South Africa senior economist
He said the central bank has forecast a slow decline in CPI towards the end of 2024 and that inflation will be near the middle of their target range by year-end. “This will allow the SARB to cut interest rates in the second half of this year,” he said.
Are interest rates going down in 2024? ›
While the Fed had hinted at several rate drops in 2024, they haven't occurred yet, as stubborn inflation and other factors have delayed them.
Which bank in South Africa has the highest interest rate? ›
Best savings accounts in South Africa
| ACCOUNT | INTEREST RATE |
|---|
| Investec savings accounts | 4.75 – 9.52% |
| Nedbank save and invest accounts | 4.5 – 10.06% |
| Standard Bank savings and investment accounts | 3.5 – 9.5% |
| TymeBank GoalSave | 4 – 10% |
5 more rowsRepo and Reverse repo rates are decided by the Monitory policy committee (MPC) of RBI. A bank rate is the interest rate at which a nation's central bank lends money to domestic banks, often in the form of very short-term loans. Managing the bank rate is a method by which central banks affect economic activity.
What is the prime rate in South Africa? ›
The current prime lending rate is 11.75%, based on a repo rate of 8.25% as determined by the South African Reserve Bank.
Why is reverse repo so high? ›
Inflows into the facility expanded rapidly when the Fed was aggressively buying bonds to provide stimulus during the depths of the coronavirus pandemic and its immediate aftermath, taking reverse repos sharply higher from nearly zero inflows in the spring of 2021.
What happens when the repo rate increases? ›
This higher cost of borrowing is subsequently passed on to customers (borrowers) through rate increases. A rise in repo rate increases the interest rate on all types of loans, such as Personal Loan, Business Loan, Car Loan, etc. Since loans become more expensive, the demand for loans, on the whole, goes down.
What will happen if the Reserve Bank increases the repo rate? ›
When the repo rate increases, the following happens: Interest rates on your home or car loans will increase, which in turn will increase the monthly repayments. * Interest rates on your savings or investments will also change.
What is the time period of repo rate? ›
Tenure for loans taken at a repo rate can be granted within one day time period. But when it comes to the loans at the bank rate, these rates have a time frame of around 28 days. Both the repo and bank rates are the rates that RBI usually lends the loan.
When reverse repo rate is increased? ›
When there is an increase in the reverse repo rate, it allows commercial banks to push their additional funds into the safe custody of the RBI for a short term and also earn attractive interests for the same. This step brings about a reduction in the liquidity of the banks.
