The Monetary Policy Committee (MPC) meeting of the Reserve Bank of India (RBI) will start from today (3 March) i.e. Wednesday. This meeting will continue till March 5. This will be the first meeting of the financial year 2024-25. According to experts, no change in RBI repo rate i.e. interest rate is expected in this meeting. Currently the repo rate remains at 6.50%. RBI had not increased interest rates in its earlier meeting held in February. In the financial year 2022-23, the repo rate was increased by 2.50% 6 times. Monetary policy meeting is held every two months. The first meeting of the financial year 2022-23 was held in April-2022. Then RBI had kept the repo rate stable at 4%, but by calling an emergency meeting on 2nd and 3rd May, RBI increased the repo rate by 0.40% to 4.40%. This change in the repo rate took place after May 22, 2020. After this, in the meeting held from 6 to 8 June, the repo rate was increased by 0.50%. Due to this the repo rate increased from 4.40% to 4.90%. Then in August it was increased by 0.50%, taking it to 5.40%. Interest rates increased to 5.90% in September. Then in December the interest rates reached 6.25%. After this, the last monetary policy meeting for the financial year 2022-23 was held in February, in which the interest rates were increased from 6.25% to 6.50%. Why does RBI increase or decrease the repo rate? RBI has a powerful tool to fight inflation in the form of repo rate. When inflation is very high, RBI tries to reduce money flow in the economy by increasing the repo rate. If the repo rate is high then the loan received by banks from RBI will be expensive. In return, banks will make loans costlier for their customers. This will reduce money flow in the economy. If money flow decreases, demand will decrease and inflation will decrease. Similarly, when the economy goes through a bad phase, there is a need to increase money flow for recovery. In such a situation, RBI reduces the repo rate. Due to this, the loan from RBI becomes cheaper for the banks and the customers also get the loan at a cheaper rate. Let us understand from this example. When economic activity came to a standstill during the Corona period, demand decreased. In such a situation, RBI had increased the money flow in the economy by reducing interest rates. What happens due to increase or decrease in reverse repo rate? Reverse repo rate is the rate at which RBI gives interest to banks on keeping money. When RBI has to reduce liquidity from the market, it increases the reverse repo rate. Banks take advantage of this by receiving interest for their holdings with the RBI. RBI increases the reverse repo rate during high inflation in the economy. Due to this, banks have less funds to give loans to customers.
