InvestorQ : Why did the RBI choose to keep the repo rates at same level instead of cutting the rates?
Niti Shenoi made post

Why did the RBI choose to keep the repo rates at same level instead of cutting the rates?

Answer
user profile image
Archita Jajjoo answered.
7 months ago


RBI’s rate decision was largely along expected lines and had little by way of surprises. The RBI held on to its repo rate of 5.15% leaving the reverse repo at 4.90% and the MSF and bank rate at 5.40%. One of the major reasons was the inflation touching a new high. You must be aware that inflation at 7.35% was hardly conducive to cutting rates. At current levels of inflation, the real return was already negative and there was no way the RBI could have slashed repo rates any further. Also, inflation expectations hinted at further uptick in household inflation expectations. The RBI also realized that the repo rates were at 15-year lows and with such high inflation there was no way to cut rates. Lower rates would have fuelled inflation via credit binge and the RBI could not afford to take the risk. Till inflation tones down, RBI may choose to play safe on rates front.