Behind RBI’s Repo Rate Pause, Governor Shaktikanta Das stated on Thursday that the Reserve Bank of India opted to maintain the key benchmark interest rate, the repo rate, at 6.5 percent at its first monetary policy review meeting of 2023–2024 with the willingness to move should the situation so warrant.

In a fiscal year, the central bank evaluates its monetary policy six times bimonthly.
According to RBI Governor Shaktikanta Das’ post-meeting statements, five out of the six MPC members opted to maintain the policy position of “removal of accommodation” to ensure inflation is in line with the objective while focusing on growth.

At the last MPC meeting of the RBI in early February, it decided to raise the repo rate by 25 basis points to 6.5 per cent to manage inflation.

An weapon of monetary policy that normally works to reduce demand in the economy and lower inflation is raising interest rates.

Since January, the RBI’s tolerance ceiling for retail inflation has been maintained at 6% for two consecutive months. Retail inflation in India was 6.44 percent in February compared to 6.52 percent in January.

Retail inflation in India exceeded the RBI’s 6% objective for three consecutive quarters and only managed to return to the RBI’s safe level in November 2022.

The following are some excerpts from opinions expressed by analysts, economists, and other specialists on the outcome of the RBI’s monetary policy meeting:

RBI’s Repo Rate Update: Chairman of the State Bank of India, Dinesh Khara

The RBI’s decision to raise the rate was consistent with what was anticipated. For the central banks of emerging economies, monetary policymaking has become a difficult balancing act due to the Fed’s consistently solid job data.

RBI’s Repo Rate Update: HDFC Securities’ MD and CEO, Dhiraj Relli

Are rate increases at their peak now, which is the underlying query? If the “removal of accommodation” approach is maintained, there may be opportunity for a future rate hike, which would rely on data, growth-inflation dynamics, and potential increases in food inflation. With the 250 bps increase in the repo rate, the RBI appears to be taking a wait-and-see stance.

RBI’s Repo Rate Update: CareEdge’s chief economist, Rajani Sinha

It’s notable that the RBI has held off on raising policy rates while reiterating vehemently its commitment to bringing down inflation. Given the unstable global economy and ongoing inflation threats, it only makes sense for the Central Bank to keep the door open for future tightening of the monetary policy if necessary. Yet, it is doubtful that the RBI will need to raise rates further in 2023 given the likelihood that inflation will trend lower from its current level. In 2023, we anticipate the policy rate to remain unchanged.

RBI’s Repo Rate Update: FICCI President Subhrakant Panda

Given the changing macroeconomic and financial market environment, the RBI’s decision to halt the policy repo rate is a positive one. Given recent banking industry developments, geopolitical tensions, and a slowdown in growth and trade flows, Central Banks around the world are currently experiencing increased turbulence, which called for a cautious response, which RBI has provided.

Even while the Indian economy is growing broadly and displaying indications of resilience, the picture for the rest of the world is not quite definite. As earlier rate hikes are still taking effect in the system and inflation is expected to trend down, albeit slowly, the RBI’s measured stance is appropriate at this time. Any additional policy rate increases would have had an adverse effect on growth, which must be prioritised while keeping a close eye on the inflation trajectory.

RBI’s Repo Rate Update: Chief Economist of HDFC Bank, Abheek Barua

In today’s policy announcement, the RBI effectively pulled off a hawkish pause by holding the policy rate at 6.5 percent while leaving the door open for future rate action. The central bank maintained its position of “removal of accommodation,” explaining it with the continued threat of inflation. (ANI)

RBI’s Repo Rate Update: Deloitte India economist Rumki Majumdar

The government cannot afford to ignore growth even while it is urgent to prioritise inflation stability. India must invest in its supply in order to keep up with the escalating demand. Lack of finance will have an impact on supply-side capacity building. A vicious cycle of low investment and supply restrictions brought on by excessive tightening will raise inflationary pressures.

Chairman of the ANAROCK Group Anuj Puri

This is beneficial for the residential real estate market, which has a difficult road ahead due to widespread mass layoffs by huge corporations. India is still affected by the constant effects of the global economy’s dynamics on the country’s property market. Homebuyers will appreciate the RBI’s decision to maintain the repo rates as-is.

Vice Chairman of the National Real Estate Development Council, Niranjan Hiranandani (NAREDCO)

This act of consolation will help the real estate demand rally and regain buyers’ confidence. The business association now requests budgetary assistance from the Indian government to quell the inflationary heat brought on by ongoing geopolitical unrest brought on by the failure of international banks, issues with supply chains, and global financial instability. Furthermore, the creation of creative flexi or step-up EMI plans by the banks and FIIS will help the market players bring on new property purchasers in the environment of high interest rates.

Anitha Rangan, Equirus Economist

The fact that RBI stated they were “ready to act should the situation demand” and that “task is not yet finished” shows that the halt is most likely only temporary, despite the fact that there may be numerous reasons to pause. RBI will be forced to raise interest rates again if the US Fed does. The recent OPEC oil supply move serves as a reminder of the unpredictability of the world. There may be space for a brief pause, but don’t let the guard go!

Mastertrust Senior Vice President Palka Arora Chopra

The market will undoubtedly feel some immediate respite from today’s RBI decision, which keeps the repo rate at 6.50 percent after six straight rate hikes. Therefore, it’s important to keep an eye on inflation patterns.

Investors who are passive can continue to be cautiously hopeful about the market. The main reasons for delaying rate increases are better global mood and taming rising inflation.

Anand Naiknavare, Naiknavare Developers’ Head of Business Process

The RBI’s decision to maintain the repo rate in the face of a global slowdown will give the credit lending industry durability and stabilise real estate consumption.

V K Vijayakumar, Geojit Financial Services’ chief investment strategist.

Unanimous silence from the MPC caught everyone by surprise. Nonetheless, the governor of the RBI rushed to stress that they will raise rates again if necessary. This pause can be viewed as a response to wait and see how the six rate hikes in the past will affect inflation and growth.

Senior Vice President and Head of Fixed Income at DSP Mutual Fund, Sandeep Yadav

In line with what we expected, RBI stalled. We are not shocked by RBI’s statement that the pause just applies to current MPC and that it should not be generalised to other policies in the future. For RBI to commit to a protracted pause, it is still too soon. Inflation still carries significant dangers.

Yet, we think we have reached the highest rates, barring an unexpected increase in inflation. Most likely, RBI shouldn’t increase rates any further. RBI would need some time, as in the past, to confirm this stance on policy. So, when there is greater data clarity, a rate pause may only be strengthened in the next policies.

Senior Fund Manager Piyush Baranwal of WhiteOak Capital Asset Management

We think that the bar for future rate hikes has risen with the rate hike cycle’s stop today, and we could be in for a protracted pause phase. The repo rate at 6.5 percent creates a sufficiently positive real rate, which when combined with a steady reduction in systemic liquidity should provide the necessary disinflationary force for the CPI to trend towards RBI’s target. If CPI does trend in the direction of the RBI’s projection of 5.2 percent in FY24.

President of the Confederation of Indian Industry Sanjiv Bajaj

We warmly applaud the RBI’s decision to disconnect from the global tightening cycle and halt interest rate increases, which is consistent with what the CII has always advocated. We concur with the central bank’s judgement that the system should be allowed to absorb the lag effects of previous rate hikes rather than having demand stifled by additional rate increases. Although local demand impulses are still strong, there are growing headwinds from the global banking crisis, thus the central bank needed to take a cautious approach.

President of the National Real Estate Development Council, Rajan Bandelkar (NAREDCO)

The RBI has given the real estate sector, which is already experiencing strong momentum, a much-needed boost by maintaining the policy repo rate at its current level. Developers, investors, and homeowners can benefit from this decision’s stability and certainty, which could also increase demand for mortgage loans. As a result, the sector can maintain its current momentum and continuing boosting the nation’s total economic growth.