The Reserve Bank of India (RBI) will increase its primary interest rate by 25 basis points on April 6. the current 6.5 per cent repo rate could be the terminal rate for now, said SBI Research in its latest Ecowrap report. The repo rate is the interest rate at which the RBI lends money to all commercial banks.
At the February meeting held by Monetary Policy Committee (MPC), RBI decided to raise the repo rate by 25 basis points to 6.5 per cent to keep inflation expectations anchored, break the persistence of core inflation, and strengthen the medium-term growth prospects.
Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline. In early 2020 when Covid hit the world, the repo rate was 4 per cent.
RBI is expected to raise the repo rate now and then keep it steady for the remainder of the year.
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"The (RBI's) stance could continue to be withdrawal of accommodation, even as liquidity is now in deficit mode. RBI can always keep the options open in June (monetary) policy," the SBI Research, authored by Group Chief Economic Adviser State Bank of India Soumya Kanti Ghosh, said.
The retail inflation in India fell marginally but it was above RBI's 6 per cent upper tolerance band for the second dtraight month in February 2023. In January. the retail inflation was 6.52 per cent.