‘Our Job Is Not Yet Finished’, Says RBI Guv While Keeping Repo Rate Unchanged At 6.50%

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RBI Governor Shaktikanta Das announced that the MPC has decided to keep the policy repo rate unchanged.

New Delhi: The monetary policy committee (MPC) of the Reserve Bank of India (RBI) held its three-day review meeting between 3 April 2023- 5 April 2023.

RBI Governor Shaktikanta Das announced that the MPC has decided to keep the policy repo rate unchanged. The central bank has already hiked the repo rate by 250 basis points since May in an attempt to contain inflation even though it has continued to remain above the central bank’s comfort zone of 6 per cent for most of the time.

Our job is not yet finished and war against inflation has to continue until we see a durable decline in inflation closer to the target. We stand ready to act appropriately and on time: RBI Governor Shaktikanta Das.

Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities said, “The decision to pause at 6.5% was a positive surprise. We believe the RBI is concerned on the uncertainty from global financial markets and the pause is reflective of this concern. We view this policy as a hawkish pause.”

Rakshit, however, added that the tone of the policy remains concerns on inflation, especially core inflation and remains focused on reaching the 4 per cent target over the medium term.

He pointed out that 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 the same,” said Rakshit.

RBI Hiked The Repo Rate Six Times Since May 2022

This is the seventh monetary policy review meeting that happened since May 2022. In all the previous six ones, the central bank has hiked the policy repo rate. A breakdown of the previous rate hikes are given below:

4 May 2022: The RBI increased the repo rate by 40 bps after an off-cycle MPC meeting. This hike happened for the first time in two years.

8 June 2022: RBI MPC again met in June 2022 a month after the 40 bps hike. After review, the repo rate was hiked by 50 bps to 4.9 per cent.

5 August 2022: The central bank’s monetary policy committee met again in August 2022 two months after the second consecutive rate hike. After this meeting, the repo rate was hiked by another 50 bps to 5.4 per cent.

30 September 2022: In September 2022, the RBI increased the repo rate by another 50 basis points taking the effective rate to 5.9 per cent.

7 December 2022: The central bank decided to slow down a bit in December after two consecutive 50 bps rate hikes. It increased the rate by 35 bps taking the effective repo rate to 6.25 per cent.

8 February 2023: RBI again slowed down the rate hike in February 2023. The repo rate was increased by 25 bps taking the effective rate to 6.50 per cent.

Reactions To RBI Keeping The Repo Rate Unchanged

The stock market has positively responded to RBI’s latest stance. Both Sensex and Nifty opened flat and red today ahead of the decision. As mentioned before, it was widely anticipated that there would be a 25 basis point hike. Hence, the market also was caught by surprise after RBI Governor Shaktikanta Das announced that the policy repo rate has been kept unchanged after this meeting.

“Calibrated steps undertaken by RBI will help the growth and consumption at the critical juncture of global headwinds  and slackening demand trajectory. We appreciate RBI’s calibrated approach at every critical juncture which has supported the economy in the severe downturns and rejuvenated quickly to the normal growth curve, said Saket Dalmia, President, PHD Chamber of Commerce and Industry.

Dalmia pointed out that the RBI’s MPC has decided to kept the repo rate at 6.50 per cent and remain focused on withdrawal of accommodation while supporting growth. This move is aimed at curbing inflationary pressures and ensuring financial stability in the economy.

We look forward to the continuous handholding by the Government and RBI to maintain economic growth while addressing inflationary pressures, he added.

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