Food price surges: will RBI increase repo rate in August?

RBI will consider a range of factors, including inflation, economic growth, and financial stability, in making its decision

The Reserve Bank of India (RBI) will meet on August 8-10 to make a decision on the repo rate in its monetary policy committee meeting (MPS). After back-to-back repo rate hikes, the central bank decided to keep the repo rate unchanged at 6.5 percent in the last meeting held in June this year.

While meeting in August, the RBI will consider a range of factors, including inflation, economic growth, and financial stability, in making its decision. Inflation in India has been on the rise in recent months, reaching a high of 7.04% in May 2023. The RBI has been under pressure to raise interest rates in order to control inflation, but it is also mindful of the impact that higher interest rates could have on economic growth.

After floods hit several parts of the country, the price of vegetables is likely to push inflation upwards in the months to come. Therefore, the RBI’s decision on interest rates will have a significant impact on home loan borrowers but curtailing inflation and keeping it within expected levels is what the apex bank is focussing on right now. If interest rates are raised, it will be more expensive for borrowers to take loans. However, higher interest rates could also help to control inflation.

On the other hand, if interest rates remain unchanged or are lowered, it is likely to ease some pressure on people who are already reeling under pressure owing to higher interest rates burden.

The RBI is likely to balance these factors when making its decision. The outcome of the monetary policy review meeting will be closely watched by investors and businesses, especially real estate developers and those looking to borrow loans in the next few months.

Here are some of the key points to remember:

The RBI’s MPC will meet on August 8-10.
Inflation in India has been on the rise in recent months.
The RBI is under pressure to raise interest rates in order to control inflation
RBI is mindful of the impact that higher interest rates could have on economic growth.
August meeting will have a significant impact on businesses and consumers.

Home loan interest rates have already peaked and further hikes could dampen the real estate sentiments and may put an additional burden of higher interest on loans for existing borrowers. Though lenders are still offering competitive rates to premium customers with good credit scores and high incomes but another hike may force many to delay their big financial decisions such as buying a house etc.