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RBI keeps key lending rate unchanged

Mumbai: The Reserve Bank of India (RBI) has decided to keep the repo rates unchanged at 6.5%. RBI Governor Shaktikanta Das announced this after the Monetary Policy Committee (MPC) meeting of the apex bank.  This is the fifth  time in a row that the central bank has paused the key interest rates.  The central bank had hiked the key lending rates six times earlier.

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.

The RBI had raised the repo rate by a total 250 basis points (bps) since May 2022 in efforts to cool surging inflation, which dropped to a four-month low of 4.87% in October, but is expected to remain above the RBI’s 4% medium-term target for some time.

RBI also raised the UPI payment limits for hospitals and educational institutions to Rs 5 lakh from Rs 1 lakh per transaction.

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