The repo rate is the interest rate at which the RBI lends funds to banks. Banks provide securities like treasury bills or gold to the RBI for credit during shortages.
An increase in the repo rate simply means banks pay more interest on borrowed money, which eventually impacts public borrowings like home loans and EMIs.
This was the first MPC meeting of FY25 headed by RBI Governor Shaktikanta Das. Shashanka Bhide, Ashima Goyal, Jayanth R Varma, Rajiv Ranjan, and Michael Debabrata Patra were the other members of the MPC that commenced on Wednesday.
It is conducted at least four times a year to evaluate the economic condition of the country. Multiple factors such as inflation and growth are considered before the announcement of the repo rate.
The inflation is still above the RBI’s target of 4%. The consumer price index rose to 5.09% in February due to higher food prices. Meanwhile, GDP in Q3 of the last financial year was at 8.4% due to strong performance in manufacturing, mining & quarrying, and construction sectors.
The repo rate was last changed in February 2023, increasing from 6.25% to 6.5%. From May 2022 to February 2023, it rose by 250 basis points (bps).