RBI August 2024 MPC Meeting: Inflation, Global Uncertainty Lead To Unchanged Repo Rate By Central Bank

RBI August 2024 MPC Meeting: The average weighted rate on new loans are now at a one-year low of 9.32%. Average weighted rates on new term deposits are also softening and are at 6.46% in the data

RBI August 2024 MPC Meeting: With inflation remaining above the RBI’s target levels and food prices still on the higher side, along with global uncertainty due to tensions in the Middle East, the Monetary Policy Committee of the apex bank has kept the repo rate unchanged at 6.5% for the ninth consecutive time.

Stabilising Inflation

In the previous policy review in June 2024, the RBI had raised the FY25 GDP forecast to 7.2% from 7%, while maintaining the CPI inflation projection at 4.5% for FY25. The repo rate was last increased in February 2023. Last week, the US Federal Reserve also kept its benchmark interest rate unchanged at 5.25-5.50%, with a possible rate cut on the table for the next meeting in September.

Average Rate Trends

The average weighted rate on new loans are now at a one-year low of 9.32%. Average weighted rates on new term deposits are also softening and are at 6.46% in the latest data. The data is trending in the right direction, but the governor rightly points out that there’s divergence in these trends. Some central banks are seen softening their policy while others are tightening theirs. Fuel price is trending lower, but food price remains volatile in India.

CIC Update Frequency Now 1 Fortnight

The update in the frequency of credit data sharing between lenders and bureaus is good news for consumers. Good credit behaviour will be rewarded faster this way while the damaging effect of missed payments will also be felt immediately.

MCLR Loan Share Still High

The unchanged repo rate and potential rate cuts in upcoming MPC meetings are positive signs for home loan borrowers, making it an opportune time for them to make home-buying decisions and for existing borrowers to repay their loans and reduce their burden. The percentage of MCLR and Base Rate-linked loans with government banks remains at a high 58% as per the latest data, and borrowers must consider refinancing to an EBLR loan where rates should be marginally lower and rate cuts will be passed on to them automatically. With the repo rate unchanged, borrowers with EBLR loans including home loans, personal loans, and business loans, will experience stability in their interest rates. This is even as MCLRs are seen going up.

FD Trends

There’s divergence in fixed deposit trends. While average weighted rates are falling, banks are also announcing short-term deposits with increasingly higher rates as the competition to attract fresh deposits intensifies.

Equity

The equity markets may respond favourably to the unchanged repo rate, as it reduces uncertainty and signals a stable monetary policy environment. Bond yields are likely to remain steady since there is no change in the cost of borrowing for the government or businesses. Predictable loan interest rates can also encourage consumer spending, particularly in sectors reliant on credit.

With a no-repo rate change stance, RBI is also signalling to the market that it does not want too much volatility especially when there are a couple of external shocks keeping the pressure to maintain stability. A rate cut is only looking possible in the next meetings towards the year-end if inflation does not bring negative repercussions for the economy in India and US.

The author is the CEO of BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar.