RBI Holds Repo Rate at 6.50 Percent
On June 7, 2024, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) chose to uphold the repo rate at 6.50%. This decision represents the eighth consecutive instance of the repo rate remaining unchanged, demonstrating the RBI’s commitment to maintaining economic stability amidst global uncertainties and domestic inflation concerns.
For homeowners and potential buyers, this development means there will be no immediate impact on real estate or home loan Equated Monthly Installments (EMIs). With the repo rate staying constant, banks are unlikely to adjust their lending rates in the near future, thus ensuring stability in EMIs for now.
The repo rate, which is set by the RBI, significantly influences home loan interest rates in India. Changes in interest rates affect real estate demand; lower rates typically stimulate demand by making borrowing more affordable, potentially leading to an increase in property prices. By choosing to keep the rate unchanged, the RBI aims to sustain economic stability, making housing more affordable and bolstering consumer confidence.
The real estate sector remains optimistic about the possibility of lower interest rates later in the year, which could drive housing demand and contribute to growth across related industries.
Mr. Abheek Barua, Chief Economist and Executive Vice President, HDFC Bank
As expected, the RBI kept its policy rate and stance unchanged. Although, the MPC decision saw two dissents instead of the one seen in the previous policy. The one positive out of the policy was the upward revision in the GDP growth forecast to 7.2% from 7% earlier for FY25. On the other hand, inflation forecasts were kept unchanged.
The RBI remains in a wait and watch mode to assess domestic developments like the monsoon performance, food inflation, and the new fiscal strategy before moving on rates. We continue to see the possibility of a rate cut in Q4 2024.
Despite the governors’ emphasis that monetary policy decisions are driven primarily by domestic considerations, we think that any rate cut action could end up being aligned with the timing of the Fed’s rate cut cycle to limit financial market volatility.On the regulatory front, the increase in bulk deposit limit to INR 3 crore from INR 2 crore, signals the RBI’s intention to encourage banks to garner greater retail deposits to fund credit growth.
Mr. Dilip Modi, Founder & CEO of Spice Money
“The Reserve Bank’s decision to establish a Digital Payments Intelligence Platform marks a significant advancement for the digital payment ecosystem. As India swiftly ascends to become a digital payment leader, fueled by the extensive adoption of solutions like UPI and AePS, there has been a concurrent rise in fraudulent activities. The RBI’s annual report indicates that digital payment fraud surged more than fivefold, reaching a record ₹1,457 crore in the fiscal year ending March 2024. This initiative aims to address these challenges by underscoring the necessity for a comprehensive, system-wide approach to ensure safety and security in digital transactions.
AePS has been witnessing a surge in fraudulent activities which has affected the trust among rural users. Vulnerabilities have been exploited by scammers resulting in significant financial losses thereby undermining user confidence. Online fraud through the Aadhaar Enabled Payment System (AePS), accounted for 11 percent of online financial scams during 2023, according to an analysis from India’s cybercrime unit. While the central bank has already announced its aim to bring a standardized secure onboarding process for all, this initiative can help in curbing the fraudulent activities even further. Strengthening the trust among rural citizens in AePS is vital for the continued growth of the payment ecosystem in rural India.
We at Spice Money have been working tirelessly to ensure the safety and security of our customers. Addressing concerns surrounding AePS has been a top priority for us. We welcome this move by the RBI, which will help in tackling these issues, contributing to creating a robust system. We hope that the benefits of this platform will also extend to AePS, which is a crucial driver of financial inclusion and the UPI for Rural India. The proposed platform’s real-time data sharing and network-level intelligence will significantly help in creating a more secure and reliable digital payments environment thereby boosting confidence of the citizens of India.”
“With headline inflation moderating, liquidity remaining stable and growth figures being impressive, many observers felt that maybe this time, the MPC may want to consider adopting a dovish stand. However, with the geo-political situation still remaining volatile and India’s food inflation staying elevated, the RBI has rightly prioritised caution by maintaining status quo on policy rates.The RBI’s revised projection of a Real GDP growth rate of 7.2% for FY25 compared to 7% earlier is a sign of confidence in the Indian economy’s resilience. The proposal to establish a Digital Payments Intelligence Platform promises to fortify the digital payments ecosystem. The ecosystem will be further boosted by the inclusion of various recurring payments under the e-mandate framework.”
