Does RBI decide to step up the bank interest rates?

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MUMBAI: The Reserve Bank of India (RBI) is expected to raise the sovereign repo rate from 3.35 percent to 3.55 percent.

The Reserve Bank issues monetary policy announcements every 2 months. On May 22, 2020, the interest rate was reduced to an all-time low in history. Since then the interest rate has not changed for the past 8 times.

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The six-member Monetary Policy Committee met in Mumbai to discuss monetary policy. The meeting was attended by officials including RBI Governor Shaktikanta Das.

After the meeting, RBI Governor Shaktikanta Das said in a statement that interest rates had not been adjusted since the last monetary Committee meeting on monetary policy last December.

The short-term loan interest rate remains at 4%. The reverse repo rate stands at 3.35%.

This is the ninth consecutive time that interest rates have remained unchanged. The cash reserve ratio (CRR) will remain at 4 percent and the Statutory liquidity ratio SLR at 18 percent.

In this context, the Reserve Bank’s review meeting was to be held in Mumbai on 7th February. Three of the Reserve Bank’s monetary policy committees have been adjourned following Maharashtra’s announcement of mourning on Monday following the death of renowned singer Latha Mangeshkar. This meeting ends on Thursday (February 10). It is expected that the Reserve Bank will announce its decision on that day.

Some economists have suggested that the Reserve bank will raise the borrowing rate from banks, known as the reverse repo rate, from 3.35 percent to 3.55 percent.

Meanwhile, some government sources said that the RBI will keep the repo rate stable. As the speed of the 3rd wave of corona infection is not completely reduced the changes would not be made.

Many economists expect an increase in the repo rate to be a measure to reduce the increased surplus liquidity in the markets that were increased during the corona pandemic. Some other economic advisers expect the repo rate to rise by 25 bps at its next meeting in April.