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This is the 11th time in a row that the MPC has maintained the status quo. Apart from that, the committee also decided to maintain the benchmark repurchase (repo) rate at 4 per cent.
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The Reserve Bank of India (RBI) on Friday kept the benchmark interest rate unchanged at 4 per cent and decided to continue with its accommodative stance amid rising inflation.
Based on an assessment of the macroeconomic situation and the outlook, the Monetary Policy Committee (MPC) voted unanimously to keep the policy repo rate unchanged at 4 per cent, said RBI Governor Shaktikanta Das, while announcing the bi-monthly monetary policy review.
Notably, this is the 11th time in a row that the MPC has maintained the status quo. Apart from that, the committee also decided to maintain the benchmark repurchase (repo) rate at 4 per cent. Also, the reverse repo rate will continue to earn 3.35 per cent interest for banks for their deposits kept with RBI, according to the central bank.
After the decision of MPC, here are the reaction of the industry leaders:
Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank said, “RBI has shifted towards hawkishness acknowledging the increasing upside risks to inflation. The withdrawal of accommodation tilt is clear by the normalisation of the effective policy corridor to pre covid levels of 50bps. We expect the MPC to change the policy stance to neutral in the June policy. The repo rate hikes will follow from August. We see a 50 bps repo rate hike in FY23."
Pradeep Multani, President, PHD Chamber of Commerce and Industry said, "PHD Chamber welcomes the status quo by the Reserve Bank of India's MPC. The accommodative stance by the RBI is in line with the PHD Chamber’s expectations to strengthen and support the business and consumer sentiments as well as the economic recovery. RBI’s MPC has decided to keep the repo rate unchanged at 4 per cent and remain accommodative."
Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities said, “The policy decisions are in line with our expectation on repo rate and stance. The rate corridor has now effectively reduced to 25 bps compared to 65 bps earlier. The SDF window will become the new floor at 3.75 per cent even as the reverse repo rate is at 3.35 per cent. The policy has decidedly shifted away from being dovish. RBI’s concern on inflation has increased significantly, especially with the FY2023 average inflation estimate revised up to 5.7 per cent from 4.5 per cent. The concern on growth is relatively lower in this policy even as the FY2023 GDP growth estimate has been lowered to 7.2 per cent from 7.8 per cent."
Amnish Aggarwal, Director- Research, Prabhudas Lilladher said, "RBI has maintained repo and the reverse repo rates along with an accommodative monetary policy to support growth in an uncertain environment of rising inflation and crude prices, geopolitical tensions and a resurgence of Covid in China. Taking a cautious stance, RBI cut its GDP projection for FY23 from 7.8 to 7.2 per cent and hiked inflation from 4.5 to 5.7 per cent led by Q1 at 6.3 per cent and H2 at 5.4-5.1 per cent. RBI’s stance seems to change mainly due to rising inflation and global uncertainties even as we expect an uptick in rural income from high Agri commodity prices and gradual demand revival in coming months."
Sharad Chandra, Director, Mehta Equities said, "RBI policy was announced in the prevailing geopolitical environment. They also had to take into account that the currency has been volatile, domestic inflation will inch up and the US Fed has increased rates. MPC surprised many by keeping the repo rate unchanged. An accommodative stance was maintained but with an indication of gradual withdrawal of liquidity which implies slow tightening. RBI was realistic on growth estimates of GDP and inflation."
Rajni Thakur, Chief Economist, RBL Bank said, “RBI continues on its exemplary act of balancing the contrasting pulls of its key objectives viz; price stability, growth support and easy financial conditions. While the key policy rates remain unchanged, restoration of the LAF corridor to 25 bps below and above the repo rate, has effectively pushed up the short term rates by 40-50 bps. Similarly, while the monetary policy stance continues to be ‘accommodative’, the accompanying statement mentions its focus on ‘withdrawal of accommodation’ to match up with rising price pressures. Given the current macro-dynamics, MPC announcements were a tight rope walk that has delivered on re-calibrating growth-inflation projections, signalling impending hikes and still buying time to hike lending rates.”
Dharmakirti Joshi, Chief Economist, Crisil said, "The central bank had already begun normalising its policy last fiscal by absorbing excess liquidity through variable-rate operations. During Friday’s policy review, we took a concrete step by restoring the policy rate corridor under the liquidity adjustment facility (LAF) to pre-pandemic width of 50 basis points by introducing a standing deposit facility (SDF) at 3.75 as the floor of this corridor. This was imminent given the sharp rise in inflationary pressures. We believe both these factors are set to change this fiscal. Food inflation faces upside risks from surging international food prices and input costs for agriculture. Core inflation is also expected to rise above 6 per cent as producers increase the passthrough of input costs amid improving demand conditions."