We break down the latest RBI monetary policy updates and how could affect you and your financial decisions.

The news

For the tenth time straight, the RBI has kept the Repo rate unchanged at 6.5%, allowing balanced growth and inflation. While the policy stance has shifted to ‘neutral’, suggesting a possible rate cut in the future.

Monetary policy simplified

Monetary Policy is the process performed by the central bank of a country to steer the economy to ensure stability and growth by managing three things:

  1. Supply of money
  2. Interest rates
  3. Inflation

Imagine monetary policy as parenting. If you give your child too much comfort, they won’t become resilient. But if you deprive them of all comfort, they won’t grow properly and thrive.

Similarly, a central bank has to balance between providing too much money, which can lead to inflation (like over-comforting), and restricting money supply too much, which can slow down economic growth (like depriving comfort).

The goal is to maintain a balance that fosters steady and healthy economic growth. 

How does a Repo Rate affect our spending?

An increase in the Repo Rate means higher interest rates for loans and deposits, discouraging people and businesses from borrowing while making deposits more attractive.

People often postpone high ticket purchases because of expensive loans, decreasing the overall demand in the economy and slowing down its growth and inflation.

And when inflation is in control, RBI decreases the Repo Rate, making loans more attractive and pushing up overall spending, boosting economic growth.

What does the Current MPC Outcome mean for you?

By keeping the repo rate at 6.5% and shifting its stance to neutral, the RBI is signaling that it is comfortable with the current inflation and growth levels.

A neutral stance allows the RBI to be flexible and adapt to changes, balancing between supporting growth and keeping inflation in check.

Many financial institutions expect the RBI would start cutting rates in December to further boost the economic expansion.

To conclude

Assuming the RBI would begin the rate cut cycle soon, it presents an opportunity to secure better returns on fixed deposits now, and also you could opt for floating interest rates if you’re considering taking a loan.