After six straight raises, the Reserve Bank of India (RBI) stunned markets by leaving its benchmark repo rate constant, saying it was closely monitoring global financial instability. RBI reiterated its strategy of “removal of accommodation” on Thursday, suggesting it may raise rates again. RBI Governor Shaktikanta Das stated the rate rise suspension is “for this meeting alone”. Three central bankers and three outsiders on the monetary policy committee (MPC) kept the repo rate at 6.5 percent. Most experts predicted one last 25 basis point boost in the RBI’s current tightening cycle, which has raised the repo rate 250 basis points since May last year.
“We might see the RBI now going on a prolonged pause during FY24,” said HDFC Bank chief economist Sakshi Gupta. India’s fiscal year runs April to March. The Reserve Bank of Australia, for example, held rates constant on Tuesday to analyze the impact of earlier hikes but signaled that future increases may be needed. “We have to be exceedingly judicious in our actions,” Das remarked. Das stressed that RBI’s “work is not yet over and the struggle against inflation needs to continue” despite the central bank’s decision to stop rate rises due to global macroeconomic and financial conditions. Retail inflation was 6.44 percent in February, down from 6.52 percent in January, but over RBI’s target range for 10 of the previous 12 months. The central bank expects 5.2 percent inflation in 2023-24 and 6.5 percent GDP growth in the financial year starting April 1. According to ICRA chief economist Aditi Nayar, financial stability worries halted rate rises.
Another raise might be in the offing, especially if the financial stability situation stabilizes’, Nayar said if inflation doesn’t meet the MPC’s expectations. Unlike the prior decision, when four members voted to raise rates, this one was unanimous. With the RBI’s surprise, government bond rates plummeted. The 10-year benchmark 7.26 percent 2032 bond yield decreased to 7.14 percent, the lowest level since September 15, after the policy announcement, from 7.28 percent previously. 10.20am yield: 7.18 percent (04:50 GMT).
