The central bank said its policy stance remains focused on “withdrawal of accommodation”, signalling it could consider further rate hikes if necessary. The pause in rate hikes is “for this meeting only”, said RBI Governor Shaktikanta Das.
The monetary policy committee (MPC) retained the key lending rate or the repo rate at 6.50% in a unanimous decision.
Most analysts had expected one final 25 basis point hike in the RBI’s current tightening cycle, which has seen it raise the repo rate by a total 250 bps since May last year.
RBI Monetary Policy review: Here is what experts have to say about the policy announcement
The Reserve Bank of India has decided to keep the key benchmark interest rate – repo rate – unchanged at 6.5 per cent with readiness to act should the situation so warrant, Governor Shaktikanta Das announced on Thursday, after a two-day monetary policy (MPC) meeting. Here is what experts have to say about the policy announcement.
Anitha Rangan, Economist, Equirus, Mumbai
In a surprising move, the RBI indicated a pause in the monetary policy keeping the repo rate unchanged at 6.5% with “readiness to act should the situation so warrant” with a unanimous vote maintaining stance of “Withdrawal of Accommodation”. Again the governor emphasised that the pause is in this meeting only.
While there may be many reasons to pause, the fact that the RBI has noted their “readiness to act should the situation warrant” and “job is not yet finished” suggests that the pause in all likelihood is temporary. If the Fed hikes, the RBI will be bound to hike once more. The recent oil supply action from OPEC is a reminder of global uncertainty. There may be room to pause but not let the guard down!
Shilan Shah, Deputy Chief Emerging Markets Economist, Capital Economics, London
The RBI’s decision to keep the repo rate on hold today comes as a surprise and belies the central bank’s recent hawkish communications. The door remains ajar for hikes in the future but with headline inflation set to fall back to within the RBI’s 2-6% target range before long, we think the tightening cycle has now come to an end.
Today’s meeting doesn’t serve as forward guidance and the hiking cycle could resume if the data warrants it. But given the subdued growth outlook and the likelihood that inflation falls back to within the RBI’s target range before long, our view that the tightening cycle is at an end. And interest rates in India rarely stay unchanged for a prolonged period: by the end of the year, the RBI could be laying the groundwork for rate cuts.
Rahul Bajoria, MD & HEAD of EM Asia (Ex-China) Economics, Barclays, Mumbai
As the central bank expects inflation to moderate going ahead, we believe this is the last rate hike in the cycle, and expect the RBI to stay on hold through the rest of FY2023-24. Governor Das flagged unprecedented uncertainty in geopolitics, financial markets and the economic landscape, and continued to sound caution around the inflation outlook, especially core inflation.
We no longer expect any further rate hikes from the MPC in FY23-24. We think only a material upside surprise keeping CPI inflation above 6% for a long period would warrant another rate action by the MPC.
ACHALA JETHMALANI, ECONOMIST, RBL BANK, MUMBAI
The policy appears to be a hawkish pause as the MPC turns data dependent whilst it awaits the monetary efficacy from prior rate hikes to play out into the deposit and lending rates.
With the Governor stating that today’s pause on policy rates is for this policy only, it has the elbow room to act on rates if inflation readings surprise on the upside.
Basis the current growth-inflation dynamics and the global backdrop, the repo rate is likely to peak out at 6.50-6.75% with a possibility of a final 25bps to be delivered in 1H FY24.
SIDDHARTHA SANYAL, CHIEF ECONOMIST AND HEAD OF RESEARCH, BANDHAN BANK, MUMBAI
The RBI’s “surprise” pause on the repo rate in April is completely in line with our expectation. In fact, the 6-0 voting in favour of a pause is stronger than our expectation.
With the likely softening of CPI to the low- to mid-5% levels in the coming month, the current repo rate of 6.5% implies that India’s real policy rate will hover around 1% during 2023-24, while maintaining a policy rate differential of about 1.5% with the US. This clearly helped the decision of a pause on the repo rate.
In the current EBLR regime of immediate and fuller pass through of repo rate hikes to lending rates, it is heartening to see a more balanced and nuanced approach from the MPC.
The material narrowing of trade and current account deficits and range-bound INR must have offered the MPC better comfort for pursuing a more “Fed-independent” monetary policy.
RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI
Increased global uncertainty, stable currency in 2023 & the incomplete transmission of the past aggressive rate hikes must have prompted the MPC to take a short break in the rate hiking cycle.
By keeping the stance at withdrawal-of-accommodation and keeping the doors open to further rate hikes, the MPC has clearly signalled that the war against inflation is still not over. Rather, the RBI wishes to wait and watch how the situation pans out amid the threats of El Nino, the global banking turbulence, OPEC production cuts and geopolitical tensions.
SAUGATA BHATTACHARYA, EXECUTIVE VP AND CHIEF ECONOMIST, AXIS BANK, MUMBAI
The MPC decision to pause at the review meeting is probably a reflection of the extreme uncertainty which characterises the global economy, and the risks of its potential spillovers into India.
The MPC has also retained the flexibility to tighten policy at future meetings, should high and persistent inflation warrant such action. Retaining the stance at removal-of-accommodation also signals a continued focus on steadily guiding inflation down towards the 4% target.
UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI
The RBI’s unexpected pause comes despite the previous readings being elevated above 6%. Given today’s policy decision, we expect the RBI to maintain an extended pause and evaluate the lagged impact of previous rate hikes and global uncertainties on growth-inflation dynamics.
VIVEK KUMAR, ECONOMIST, QUANTECO RESEARCH, MUMBAI
The RBI’s decision to pause came as a surprise given concerns on elevated and sticky core inflation and the emerging risk of some disruption to the southwest monsoon. While recent global economic uncertainty and financial market volatility appear to have weighed upon the policy decision, concerns about both have eased on the back of prompt action by the Fed and the ECB.
Having achieved a reasonable positive level of real policy rate, it appears that the RBI now prefers to go slow while adopting a data-dependent mode. Room for additional rate hikes has been retained with MPC’s policy stance continuing to remain unchanged at ‘withdrawal of accommodation’.
In the near term, the gradual decline in liquidity surplus will continue and amplify the monetary policy transmission to money market rates.
MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL, MUMBAI
The unchanged policy rate and stance have been met by non-committal forward guidance, clearly giving more stress to the fluid and uncertain global situation, implying macro assessments might require appropriate adjustments ahead from the policy perspective.
However, the governor stressed that their inflation fight is not over and we are still away from durable disinflation with unyielding core inflation still a concern.
We believe the fear that “speed can kill” has led to a dovish turn from a number of central banks in both developed and emerging markets, amid growing concerns over the transmission of policy tightening to growth and the same rub-off is happening in the RBI’s reaction function.
KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU
The RBI governor echoed our sentiment that it is time to pause and not only do the health check of the banking system (in the aftermath of the SVB debacle) following the steepest-ever increase in the policy rate but also allow more time for the aggressive monetary policy decision to play out, especially when there’s already palpable signs of weakness in domestic economic activity.
While the RBI has stayed put with its forecast of 6.5% growth (we expect a growth of 6.0% with a likelihood of further lowering), growth worries remain rather elevated and hence the focus is shifting away from inflation, as we have been expecting.
We believe that rising corporate concentration and the surge in GST rates announced by the GST council following their 47th meeting in end-June are primary reasons why the path of easing inflation remains wobbly and slope shallow.
PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI
The MPC delivered a hawkish pause today against our expectation of a 25-bps hike. We don’t see this as a turning point in monetary policy direction. Given elevated inflation and resilient domestic demand, the bias is for further rate hikes in 2023, about 50bp more.
As soon as the MPC sees confidence that the world is not staring at another ‘Lehmann-moment’ or Global Financial Crisis, it will likely continue with further rate hikes to contain inflation.
CHURCHIL BHATT, EXECUTIVE VICE PRESIDENT & DEBT FUND MANAGER, KOTAK MAHINDRA LIFE INSURANCE COMPANY LIMITED, MUMBAI
The MPC’s unanimous pause is a reflection of the economic uncertainties surrounding policymaking today. However, as emphasised by the RBI Governor, this pause may not be interpreted as the end of the battle against inflation.
Bond market narrative will now shift focus to how long the MPC will need to persist with existing tightness in monetary policy. In absence of a major global event, we expect an extended pause in the domestic repo rate. This is because, while the inflation is likely to soften in FY24, we are far from MPC’s eventual target of 4% headline CPI.
Overall, we expect domestic yields to remain range bound till clarity over the future direction of policy rates emerges. Additionally, the ongoing steepening trend in the sovereign yield curve will be reinforced as a result of this policy. We expect 10-year GSec to trade in the 7.10%-7.40% range in the near term.”
AURODEEP NANDI, ECONOMIST AND VICE PRESIDENT, NOMURA, MUMBAI
Enough (tightening) might be enough was the overarching message from the RBI in the April meeting. We were out of consensus in forecasting that the RBI would pause and keep its stance at ‘withdrawal of accommodation’ – which is exactly what was delivered.
In our view, this reflects a forward-looking monetary policy that takes into cognisance elevated global growth risks, moderating inflation trajectory, and the need to wait and watch and assess the impact of the sharp policy tightening already delivered.
We maintain our view of 75bps of rate cuts, starting from October.
GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI
We see today’s action as a breather in this rate hike cycle with financial stability taking precedence amid global bank failures and associated tight financial conditions. With stance remaining unchanged, MPC has now become data dependent.
We believe the bar for future rate hikes has increased, especially since near-term prints of CPI will be sub 6%. We expect FY24 CPI to range between 5.2-5.5% in FY24E and GDP growth at 5.7%-5.8% in FY24E.
Key risk to watch out for would be food price rise amid inclement weather conditions and movement in global oil prices.
SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI
The decision to pause at 6.5% was a positive surprise. We believe the RBI is concerned about the uncertainty in global financial markets and the pause is reflective of this concern. We view this policy as a hawkish pause. The tone of the policy remains concerned about inflation, especially core inflation and remains focused on reaching the 4% target over the medium term.
The RBI remains comfortably on the growth front, for now. We believe the risks to this outlook is skewed towards the downside. We expect the RBI MPC to remain on an extended pause. Scope for further hikes is limited given our growth-inflation outlook and impact of the past rate hikes on the same.
ANJALI VERMA, CHIEF ECONOMIST AND CO-HEAD RESEARCH, PHILLIPCAPITAL INDIA, MUMBAI
Uncertainty led to RBI taking a pause along with maintaining reversal-of-accommodation stance. While growth forecasts have been left unchanged, we expect growth to slowdown to 5.5-6% in FY24. The RBI’s decision reflects that RBI is acknowledging growth softness along with inflation concerns (is) not that strong anymore.
SUJAN HAJRA, CHIEF ECONOMIST AND EXECUTIVE DIRECTOR, ANAND RATHI SHARES AND STOCK BROKERS, MUMBAI
With inflation still elevated and most major central banks hiking rates recently, the chance of a 25 bps rate hike was considerable. The RBI opting for a pause seems to suggest that the central bank expects softer inflation and growth. With this, it seems that the RBI has come to the end of rate hike for this cycle. Unless there was a big surprise either on inflation or growth, we expect the RBI to remain in pause mode during 2023.
SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM
Following in the footsteps of some recent global policy announcements (like the RBA), the RBI unanimously delivered a hawkish pause. Growth was revised up to 6.5% while inflation estimates were revised down.
However, the governor highlighted that they will not refrain from taking further action if required, especially in light of the recent increase in oil prices and given core inflation remains elevated.
We could see the RBI now going on an extended pause throughout FY24 while liquidity conditions continue to tighten. Short term yields could therefore continue to see some pressure.
ADITI NAYAR, CHIEF ECONOMIST, ICRA, GURGAON
Financial stability concerns appear to have pre-empted a pause as the MPC assesses the impact of its cumulative 250 bps of rate hikes. If inflation does not fall in line with the MPC’s assessment for Q1 FY2024, another hike could be in the offing, especially if the financial stability situation stabilises.
RADHIKA RAO, SENIOR ECONOMIST, DBS BANK, SINGAPORE
The RBI MPC surprised with a pause on Thursday but emphasised that the path ahead will be nimble to address evolving inflationary risks and maintained its hawkish stance. Tone on growth was upbeat, validated by a small upward revision to the FY24 growth target.
Oil projection was cut, besides factoring in the assumption of a normal monsoon. With policymakers highlighting risks to global financial stability, the tightening cycle has likely slipped into an extended pause, barring unexpected shocks. Beyond anchoring inflationary expectations, the impact of tighter monetary policy on supply-side shocks, especially poor weather conditions, is limited, instead requiring administrative measures and fiscal support. (Reporting by Navamya Ganesh Acharya, Nishit Navin, Yagnoseni Das, Nallur Sethuraman, Anuran Sadhu, Ashish Chandra, Swati Bhat, Meenakshi Maidas, Siddhi Nayak and Nandan Mandayam; Editing by Janane Venkatraman)