RBI retains interest rates in seventh consecutive credit policy

New Delhi – The bi-monthly credit policy review meeting of the Reserve Bank of India (RBI) was held. The meeting decided not to change the repo and reverse repo rates for the seventh time in a row. The country’s economy slowed down during the Coronavirus pandemic. During this period, the RBI had decided not to make any changes in interest rates to boost the economy. No change in interest rates was made even at the meeting on Friday. The business world is welcoming this. Confidence between business and customers will increase. Entrepreneurs believe that demand and sales will increase during the festival period.

The RBI has maintained the repo rate at 4 per cent and the reverse repo rate at 3.35 per cent. The repo rate is the rate at which the RBI provides loans to banks. The interest earned by banks on RBI deposits is called the reverse repo rate. Both of these rates control the cash flow in the market. If the repo rate is cheaper, the banks offer the benefit to the customers, thus reducing the burden of monthly instalments on home loans, auto loans, and household items for the customers. Also, because of the low reverse repo, banks play more in the market rather than depositing their money with the RBI. This increases the liquidity meaning the cash flow.

As per analysts and industry leaders, the economy, which is recovering from the second wave of the Coronavirus pandemic, needs to maintain liquidity in the market right now. Moreover, the interest rates need to be lower to boost the housing industry and vehicle purchases because of the upcoming festive season. The RBI has kept the repo rate unchanged after reducing it by 2.5% in 2019. This decision is welcomed by the business community, as the RBI has not made any changes to interest rates as expected.

The RBI’s Credit Policy Committee (MPC) meeting unanimously decided not to change interest rates. RBI Governor Shaktikant Das said that the decision is aimed at boosting the economy of the country. Inflation has risen. Efforts are on to keep inflation at four to six per cent. Currently, the economy is recovering well; it is clear that the economy is recovering from the Coronavirus wave. The economic cycle is now returning to normal in many places, given the vaccination drive. But our goal is to improve supply and demand further. With that in mind, it was decided to change the interest rates.

Meanwhile, Sanjay Agarwal, president of the PHD Chambers of Commerce and Industry (PHDCCI), said the decision to keep interest rates unchanged amid rising inflation would boost confidence among traders and consumers. It will also help boost demand, he said. Agarwal also called on banks to reap full benefits of the RBI’s interest rate cuts so far. The Associated Chambers of Commerce of India (ASSOCHAM) also welcomed the decision, expressing the confidence that the liberal policy adopted by the RBI would benefit the economy.