RBI Decides To Keep Repo Rate Unchanged At 6.5 Per Cent

The Reserve Bank of India (RBI) on Thursday announced the bimonthly monetary policy and decided to keep the repo rate unchanged, RBI governor Shaktikanta Das said after the monetary policy committee meeting.

The repo rate is at 6.5 per cent with 'readiness to act should the situation so warrant', Das said.

“We are witnessing unprecedented uncertainties in geopolitics and economy,” said governor Das while adding that RBI will remain focused on withdrawal of monetary policy accommodation. He said the decision to pause was ‘for this meeting only’ indicating more rate hikes if necessary.

“India’s economic activity remains resilient with real GDP growth expected at 7 per cent in FY23,” said Das. The RBI has marginally raised GDP growth projection for FY24 to 6.5 per cent from 6.4 per cent.

The decision to keep the key lending rate unchanged was taken based on ‘assessment of the current macroeconomic and financial conditions’. Das said that the ‘war against inflation will continue until durable decline in inflation closer to target is seen’.

India’s current account deficit for the first three quarters of FY23 stood at 2.7 per cent of GDP and is expected to remain moderate in the fourth quarter, too.

Ahead of the RBI policy decision, the rupee depreciated by 5 paise to 81.95 against the US dollar in early trade. At the interbank foreign exchange, the domestic unit opened weak at 81.95 against the dollar, registering a decline of 5 paise over its last close. In initial trade, the local unit also saw a high of 81.88 against the greenback.

In the last Monetary Policy Committee meeting in early February, the RBI decided to raise the repo rate by 25 basis points to 6.5 per cent. So far, RBI raised the repo rate by 250 basis points cumulatively since May 2022.

Dinesh Khara, Chairman, SBI said:“The RBI's decision to pause rate hike for now was a pleasant surprise given the market talks of one more final rate hike. With uncertainty looming large, this decision was perfectly timed. Simultaneously, the bouquet of regulatory initiatives like linking UPI to credit and developing the onshore market will spur innovations in product offerings. The decision to enable tracing unclaimed deposits and strengthening of grievance redressal are customer centric. Overall, RBI’s April policy, guides the market in terms of expectations alignment.”

Amit Gupta, MD, SAG Infotech welcomed the decision by RBI monetary policy committee (MPC) to keep the policy repo rate unchanged at 6.5 percent.

He said, “It is commendable that the RBI has reacted to persistent inflation by taking measures. Yet it's important to remember that since May 2022, the central bank has already increased the repo rate by 250 basis points.”

“The RBI Governor’s forecast for GDP growth and inflation for FY24 reveals a reluctance to fully embrace the country’s economic recovery. For the current growth pace to be sustained over time, accommodation must be gradually and sustainably reduced,” he added.

Reacting on the outcome of meeting, Ravi Singhal, CEO, GCL said that he believed that the inflation rate will fall in April, resulting in no increase at the May meeting. However, because of the al nino impact, there is only a possibility of a rate hike. Otherwise, it could only be seen from here.

Subhash Goel, Director of Goel Ganga Developments said that RBI's repo rate pause is an essential move to strengthen real estate competence, particularly in the residential sector.

“RBI's pause on repo rate decision will be a major boon for homebuyers after the union budget and amid prevailing housing segment,” he added.

Meanwhile, Gurmeet Singh Arora, National President, Indian Plumbing Association said that this is also a healthy sign for real estate and the allied business, as lower inflation and optimistic growth will drive consumption and foster demand.

Radhavi Desphande, President and Chief Investment Officer, Kotak Mahindra Life Insurance Company Limited said, "As expected MPC kept the repo rates unchanged. Going ahead MPC’s incremental action will be largely domestic data dependent. A longish pause continues to be our expectation.  While stabilising Brent oil and monsoon verdict remain key events to watch, the bond levels will now focus on demand-supply and liquidity guidance from time to time. Meanwhile we expect 10-year GSec to stay in the range of 7.20%-7.40%."

Indranil Pan, Chief Economist, YES BANK said pausing its rate hiking cycle, the RBI clearly takes into consideration a likely moderation in the inflation going forward. The Governor mentions recent surveys that indicate a reduction in
the cost concerns and a drop in the household inflation expectations. Oil price projection have been lowered and a good rabi harvest factored in the build out of the future inflation trajectory.

"Keeping an eye on the evolving global financial stability concerns, the RBI preferred to pause to take stock of the impact of the 250 bps rate hikes that it has already done over the past 11 months. On the other hand, the Governor indicated that “the war against inflation has to continue” and that the RBI is keenly intent in seeing the inflation within the target
band. Any inflation shocks in the future thus remains on a close watch. Consequently, the forward guidance is unwaveringly hawkish. It considers inflation being an ongoing risk and keeps the door open for further rate increases in the future by not changing its stance of “withdrawal of accommodation”. Effectively, I think that the RBI has now moved into an extended pause. Given the large number of moving pieces, it would however be difficult immediately to predict if the next change is a hike or a cut," he added. 

Atul Monga, Founder and CEO of Basic Home Loan said decision to keep a pause on rate hike is positive for the housing market as it reduces the uncertainty and volatility associated with interest rate fluctuations.

The home loan interest rates have gone up from 6.5 per cent to around 8.75 per cent with a series of rate hikes in the past and the move to pause will give a temporary reprieve and support the existing growth momentum in the real estate sector.

It will therefore help boost the housing sales especially in the affordable and mid-housing segment and encourage more people to invest in residential properties, as they have a clearer picture of their borrowing costs and can plan their finances accordingly, Monga said.

Narinder Wadhwa, president, Commodity Participants Association of India said foreign currency reserves reaching again to 600 Billion level is encouraging news .We expect extended pause & feel interest cycle is done.

Saket Dalmia, President, PHD Chamber of Commerce and Industry termed it as calibrated steps which will help the growth and consumption at the critical juncture of global headwinds  and slackening demand trajectory.

Ram Shriram, CEO of Mahagram said it is of utmost importance that the focus be put on the gradual and sustainable withdrawal of accommodation, so as to ensure that the current momentum of growth is sustained for the long run.

“The MPC's path is right further. They also promise to address evolving inflationary pressures and maintain their hawkish stance. This move not only ripples the economy but also affects individuals who seek out loans when they need them,” Ram added.