MUMBAI: For a third straight meeting, the central bank of the country, the Reserve Bank of India (RBI) Monetary Policy Committee has kept the key policy repo rate unchanged at 6.5%. 

This is the third meeting in succession that the MPC decided to maintain the status quo on the repo rate, they had last raised this rate from 6.25 per cent to 6.50 per cent at its meeting in February. Before this, it had raised interest rates by 250 basis points (bps) since May 2022 in a bid to cool surging prices.

Making the announcement RBI Governor Shaktikanta Das said that the Indian economy was the bright spot in the global economy and India’s GDP was likely to grow at 6.5% in FY-24, and the inflation was pegged at 5.4% for the said period. "Aggregate demand conditions continue to be buoyant," Das said.

Das, however, said that if food prices drive inflation higher then they could consider a tighter policy. He said that headline inflation needs to subside sustainably below 4 per cent and any surge in the inflation print, if continued for a longer period, may necessitate fresh action.

Food price spikes in India, typical at the onset of the monsoon, drove up headline inflation in June, snapping a four-month downward trend. Headline inflation, after reaching a low of 4.3 per cent in May 2023, rose in June and is expected to surge during July-August led by vegetable prices.

"While the vegetable price shock may reverse quickly, possible El Niño weather conditions along with global food prices need to be watched closely against the backdrop of a skewed south-west monsoon so far," Das said.

Addressing the concerns of retail home loan borrowers, the RBI has said that borrowers can switch to a fixed-rate regime and that it will come out with a framework allowing borrowers to switch to fixed interest rate from floating interest rate, a move that would provide relief to borrowers of home, auto and other loans reeling under the impact of high-interest rate.

Governor Shaktikanta Das said under the framework, which will be put in place very soon, the lenders will have to communicate with the borrowers about tenor and EMI.

He said, "The supervisory reviews undertaken by the Reserve Bank and the feedback and references from members of the public have revealed several instances of unreasonable elongation of tenor of floating rate loans by lenders without proper consent and communication to the borrowers."