RBI: Between the lines: Here’s what India is talking about after RBI’s surprise status quo

The Reserve Bank of India‘s (RBI) rate-setting panel, Monetary Policy Committee, on Thursday paused its rate-hike cycle by retaining the key lending rate at 6.5 per cent.

In a situation where experts were expecting a 25-bps hike, this move by RBI came as a surprise. In addition, the RBI’s MPC also slashed its inflation forecast for this fiscal year (FY24) to 5.2 per cent from the 5.3 per cent forecast in the February policy. The MPC projected India’s real GDP to grow at 6.5 per cent in FY24.

Stating the rationale behind the move, RBI governor Shaktikanta Das said, “The repo rate has been kept unchanged on basis of macroeconomic and financial conditions.”

“The decision to pause on rate is for this (April) meeting only. Monetary Policy Committee will not hesitate to take any action in future,” he added.

Also Read: RBI’s MPC presses the pause after six repo rate hikes in a row

Here’s what the experts have to say:

1. Sanjiv Bajaj, President, CII: We strongly welcome the RBI’s move to decouple from the global tightening cycle and pause interest rate hike, which is in line with what CII had been advocating for long now. We agree with the Central Bank’s observation that the lagged impact of the past rate hikes should be allowed to percolate into the system, and not stifle demand by further rate hikes. Though the domestic demand impulses remain healthy, the headwinds from the global banking stress have gained pace, hence it was important for the Central Bank to remain cautious in its stance.
2. Deepak Sood, Secretary General, ASSOCHAM: Even as the RBI’s MPC was reviewing the credit policy for the last few days, ASSOCHAM had made out a strong case for a halt to the rate hike cycle. We must thank Governor Shri Shaktikanta Das and other members of the MPC for responding to our call. In a way, the decision not to go in for any more rate increase would have surprised many as a larger expectation was on 25 basis points rise in the policy rates even as ASSOCHAM remained confident about the RBI striking a balance between reining in inflation and growth.
3. Aurodeep Nandi, India Economist and Vice President, Nomura: Enough (tightening) might just 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 stance at ‘withdrawal of accommodation’ – which is exactly what was delivered. In our view, this reflects a forward looking monetary policy that takes into cognizance elevated global growth risks, under-control inflation trajectory, and the need to wait-and-watch and assess the impact of the sharp policy tightening already delivered. However, the RBI has keep the door open to further action if macro conditions change, also in line with our expectations. We maintain our view of a policy pause hereon and 75bp of rate cuts, starting from October.
4. Subhrakant Panda, President, FICCI: The pause in policy repo rate by RBI is a welcome move given the evolving macro-economic and financial markets scenario. The renewed phase of turbulence that Central Banks are grappling with globally given developments in the banking sector, geo-politics and slowdown in growth & trade flows warranted a prudent response which RBI has delivered. While the Indian economy is showing signs of resilience with growth being broad based, the outlook globally is somewhat uncertain. RBI’s measured stance articulated today is appropriate as earlier rate hikes are still flowing through the system, and inflation is projected to trend downwards, albeit slowly; any further hike in the policy rate at this juncture would have affected growth.
5. Namrata Mittal, Senior Economist, SBI Mutual Fund: Today’s policy was a close call between no action or a final 25-bps hike in this rate hiking cycle on the back of global turbulence last month. Against this backdrop, the RBI chose to stay on hold. While the vigilance on inflation continues, contained commodity cost could keep inflation anchored around 5 per cent defying the need for any further hike in this cycle. The lag effect of earlier actions and the cumulative monetary and liquidity tightening should enable policy rates to stay on hold incrementally. The FY24 GDP estimates which are in alignment with the Budget numbers probably remains on the higher side that could be re assessed as we move forward. Policy could provide a breather to the bond market.
6. Abheek Barua, Chief Economist, HDFC Bank: The tone of the policy was rather hawkish as the RBI highlighted inflationary risks and said it would not refrain from taking further action if required –thereby, becoming “data dependent” and keeping the “door open for future hikes”. Governor Das emphasised that the “pause” is limited to this meeting and should not be viewed as a “pivot”. However, for all practical purposes, macro conditions would have to change significantly from current levels to trigger further rate hikes by the RBI. The central bank can always choose to look through any volatile movements in food inflation (due to monsoon/ weather disruptions) or fuel prices (due to some increase in oil prices), till these pressures remain temporary. We therefore expect no more rate hikes by the RBI going forward and see an “extended pause” as the most likely scenario.
7. Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank: 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 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. It was important for the RBI to leave the policy rate at a level, which can be kept unchanged for a long time, as against hiking rates very aggressively now and building up pressure for cutting the same only in few months.”
8. Rajani Sinha, Chief Economist, CareEdge: It is interesting that while RBI has paused on the policy rate front, it has also strongly reiterated its commitment to bringing down inflation. Given the uncertain global environment and lingering risks to inflation, it is only apt that the Central Bank keeps the window open for further monetary policy tightening in future if required. However, with inflation likely to trend downwards from the current level, it is unlikely that RBI will have to hike rates further in 2023. We expect a status quo in policy rate in 2023. Even while emphasizing the risks posed by the global uncertain economic environment, the RBI remains quite optimistic on growth, raising the GDP growth projection for FY24 to 6.5 per cent.
9. Anuj Puri, Chairman, ANAROCK Group: Much against general expectations, the RBI decided to keep the repo rates unchanged at 6.5% today. This is indeed good for the residential real estate market, which faces a tough road ahead amid massive layoffs by large corporates the world over. India is not decoupled from global economic dynamics and their invariable impact on the housing uptake here. The RBI’s decision to keep the repo rates unchanged comes as a welcome respite to homebuyers.
10. Anshuman Magazine, Chairman & CEO, CBRE: RBI’s decision to keep the repo rate stable was a surprise move but has been done with the view of the withdrawal of accommodation while keeping a close eye on inflation. The move is highly encouraging for the infrastructure, housing, and other real estate segments as this decision, for now, allays fears of a further increase in financial burden on developers and borrowers. With the borrowing cost expected to remain largely stable, the overall growth momentum will get a fresh impetus.
11. Jyoti Prakash Gadia, Managing Director, Resurgent India: The RBI has today sprung a big surprise by keeping the repo rate unchanged . Despite the volatility and uncertainties, the decision of RBI to maintain a status quo in policy rates is a very bold step which indicates the RBI ‘s resolve to asses the situation and support growth in the current growth inflation trade-off. RBI has chosen to tread an independent path despite the global headwinds and challenges and it is a welcome step to create the requisite atmosphere for growth and revival of the economy which is still at a nascent stage.