The Reserve Bank of India (RBI) has kept interest rates unchanged for the 11th consecutive time. The central bank has kept interest rates unchanged at 6.5%. That means the loan will not become expensive and your EMI will also not increase. The RBI last hiked rates by 0.25% to 6.5% in February 2023.
RBI Governor Shaktikanta Das informed about the decisions taken in the ongoing Monetary Policy Committee (MPC) meeting today i.e. Friday, December 4. This meeting is held every two months. The RBI had left interest rates unchanged in its previous meeting held in October.
The MPC has 6 members, three of whom are Central Bank Governor Shaktikanta Das, Deputy Governor Michael Patra and Executive Director Rajeev Ranjan. The government on October 1 appointed three new external members to the committee, including Ram Singh, Saugata Bhattacharya and Nagesh Kumar.
4 out of 6 members of the committee are not in favor of change in interest rate
The RBI Governor said that 4 out of 6 members of the Monetary Policy Committee are not in favor of a change in interest rates. Due to no change, the Standing Deposit Facility i.e. SDF rate remains at 6.25% and the Marginal Standing Facility i.e. MSF rate and Bank Rate remain unchanged at 6.75%.
RBI has increased interest rates 5 times since 2020 by 1.10% The Reserve Bank of India (RBI) has cut interest rates by 0.40% twice during Corona (27 March 2020 to 9 October 2020). After this, in the next 10 meetings, the central bank raised interest rates 5 times, left it unchanged four times and cut it once by 0.50% in August 2022. Before Covid, the repo rate was 5.15% on 6 February 2020.
Cash reserve ratio fell to 0.50%
The committee has reduced the CRR i.e. Cash Reserve Ratio from 4.50% to 4%. A regulatory measure that requires banks to keep a minimum percentage of their deposits with the central bank as reserves. The central bank uses it to control the money supply in the economy. This helps in controlling inflation and controlling liquidity.
Inflation estimate for FY25 increased to 4.8% from 4.5%
| Before | right now | |
| Q3FY25 | 4.8% | 5.7% |
| Q4FY25 | 4.2% | 4.5% |
| Q1FY26 | 4.3% |
4.6% |
| Q2FY26 | – | 4% |
Policy rate is a powerful tool to fight inflation Any central bank has a powerful tool to fight inflation in the form of policy rate. When inflation is too high, the central bank tries to reduce the flow of money into the economy by raising policy rates.
If the policy rate remains high, the loans that banks get from the central bank will become expensive. In turn, banks make loans more expensive for their customers. This reduces the flow of money in the economy. If the flow of money decreases, demand decreases and inflation decreases.
Image Credit: (Divya-Bhaskar): Images/graphics belong to (Divya-Bhaskar).
