MUMBAI: In a pleasantly surprising move, the Reserve Bank of India (RBI) decided to not go ahead with another 25 basis points hike in the repo rate as was expected by the market.
While the RBI governor did not clearly explain the reason for the halt in the rate hike cycle, he did emphasise that the decision to pause on the repo rate is for 'this meeting only' and reiterated that the Monetary Policy Committee "will not hesitate to take further action as may be required in its future meetings."
Governor Shaktikanta Das sees the headline inflation moderating in 2023-24 as the monetary policy actions taken since May 2022 are still working through the system. "Accordingly, the MPC decided to keep the policy rate unchanged to assess the progress made so far, while closely monitoring the evolving inflation outlook," he said justifying the decision to not hike the policy rate now.
Experts trying to make sense of the surprise move by the RBI came up with their own explanations. Some feel this could be owing to growing concern over financial stability, others feel it could be because of moderating growth projections.
Aditi Nayar, Chief Economist, Head - Research & Outreach, ICRA Ltd, says financial stability concerns appear to have pre-empted a pause as the MPC assesses the impact of its cumulative 250 bps of rate hikes.
Anu Aggarwal, president of Corporate Banking, Kotak Mahindra Bank, thinks that RBI has taken cognizance that there is a good 80-basis point favourable base effect from March that will ease inflation.
This pause can be seen as a wait and watch response to see how the previous six rate hikes will impact inflation and growth, says Dr. V K Vijayakumar, Chief Investment Strategist at Gojit Financial Services.
Dr. Aurodeep Nandi, India Economist and Vice President at Nomura feels the decision (to leave the repo rate unchanged) reflects a forward-looking monetary policy that takes into cognizance 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.
While the market was taking into account 250 basis points hike in repo rate since May 2022, the RBI governor says this was preceded by the introduction of the Standing Deposit Facility (SDF) at a rate 40 bps higher than the fixed rate reverse repo, which effectively makes 290 bps rate hike since April last year.