Mumbai: The apex bank in the country, the Reserve Bank of India (RBI) has decided to keep the key lending rate unchanged. The rate will kept at 6.5%. RBI Governor Shaktikanta Das informed this after the three-day Monetary Policy Committee (MPC) meeting.
The RBI started raising interest rates in May 2022. Interest rates were hiked to control inflation. Since then, the RBI has raised the repo rate by 250 basis points in 6 consecutive hikes.
Repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. Usually authorities use this key lending rate as a weapon to combat inflation. If inflation rises, then apex banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in reducing inflation.
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The central bank takes the contrary position in the event of a fall in inflationary pressures. Repo and reverse repo rates form a part of the liquidity adjustment facility.
RBI has lowered its inflation forecast for the financial year 2023-24. The inflation forecast is lowered to 5.1%. Earlier the RBI forecasted inflation rate at 5.2%.