RBI’s monetary policy committee chose to maintain the repo rate at 6.5%

Reserve Bank of India

The Reserve Bank of India chose to maintain the policy repo rate at 6.5%, in the face of persistent inflation. With a ‘readiness to move should the situation warrant,’ RBI governor Shaktikanta Das declared on Thursday following the monetary policy committee meeting.

“We are witnessing unprecedented uncertainties in geopolitics and economy,” said Governor Das while adding that the RBI will remain focused on the withdrawal of monetary policy accommodation.

In early trade, the rupee fell 5 paise to 81.95 against the US dollar ahead of the RBI policy meeting. The local unit opened weak at 81.95 against the dollar on the interbank foreign exchange, down 5 paise from its previous finish. In early trade, the local currency reached a high of 81.88 against the US dollar.

The RBI agreed to hike the repo rate by 25 basis points to 6.5 percent at its most recent Monetary Policy Committee meeting in early February. Since May 2022, the RBI has hiked the repo rate, or the rate at which it lends to banks, by a total of 250 basis points.

With its Monetary Policy Committee meetings on April 3, 4, 5, and 6, the RBI began its first bi-monthly assessment of the new fiscal year. In a year, the central bank evaluates its monetary policy six times bimonthly. There are also out-of-cycle reviews, in which the central bank holds extra sessions in times of urgency.

Also Read | RBI will hold a 14-day variable rate repo auction for Rs 1 trillion 

Poonam Tandon, CIO, IndiaFirst Life Insurance Co. Ltd, said, “The RBI kept the Repo rate unchanged at 6.5% versus the consensus expectation of 25bp rise. This pause is only for this meeting and MPC is open to act if the situation warrants while being committed to withdrawal of the accommodative stance. The RBI showed a cautious approach to inflation and growth expectations given the global banking crisis and persistent inflationary trend. The MPC remains watchful of the evolving outlook after considering the macroeconomic and financial conditions. The governor said it will continue to adopt an agile approach to liquidity management and complete its borrowing programme in a non-disruptive manner. Overall, the policy stance was a positive surprise. Given that the outlook remains dynamic, we believe RBI will continuously monitor the overall impact of the past rate hikes and act judiciously.”

Ashwani Dhanawat, CIO, Shriram General Insurance Company, says “This is the right time to prioritize both financial stability and growth over controlling inflation. Although the recent move to keep the REPO rate unchanged was anticipated, the future remains contingent on incoming data. Despite the demand-supply factors in the G-SEC (both from the Centre and States) may not be as favorable as they once were, market demand is not anticipated to decline. There does not appear to be a scope for yields to decline from their present levels.”

Ajit Banerjee, CIO, Shriram Life Insurance, stated “RBI took the market by surprise – a pleasant surprise though – by taking a unanimous decision in going for a pause from hiking rate in Apr ’23 MPC and maintaining the policy stance to be withdrawal of accommodation. The MPC opines that the rates are still in the accommodative zone and hence stance has been maintained on withdrawal of accommodation. The majority of the market participants and economists had factored in a 25 bps rate hike and possible change of stance but the MPC took everyone by surprise on both the heads. The market has welcomed this unanimous decision of RBI and both the debt and equity market reacted positively to it.

However, what should not be ignored from the Governor’s speech is his emphasis on the words that today’s pause doesn’t mean it’s a prolonged pause, it is just a pause for this meeting only. Therefore, if need arises, and situation demands due to underlying compulsions in future, rate hike can be resumed. Emphasis was also laid on the fact that war against inflation is far from over and necessary action to control may be required to be taken if deemed necessary.

The revised GDP growth estimate for FY 24 was projected at 6.5% as against previous estimate of 6.4% and revised headline CPI levels for FY 24 was projected at 5.2% against previous forecast of 5.3%.

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