RBI may pause interest hikes, keep 6.5% terminal repo rate
The Reserve Bank of India (RBI) is likely to pause interest rate hikes in the next Monetary Policy Committee (MPC) meeting in April, said State Bank of India (SBI) Research, per ANI. Reportedly, the current 6.5% repo rate could be the terminal rate for now. Notably, RBI last hiked the repo rate in February by 25 basis points to keep inflation expectations stable.
Why does this story matter?
- The repo rate is the interest rate that the RBI charges commercial banks when lending them money.
- Since May 2022, RBI's MPC has raised the key rate by more than 250 basis points.
- The rates have been raised against the backdrop of rising inflation caused by the Russia-Ukraine crisis, as well as the COVID-19 pandemic, which has disrupted the global supply chain.
RBI has enough reasons to pause repo rate: SBI Research
In the next monetary policy meeting scheduled for the first week of April 2023, the RBI has enough reasons to pause the repo rate hike, the report asserted. At the last MPC meeting of the RBI in early February, it raised the repo rate by 25 basis points to 6.5% to keep inflation expectations anchored, break the inflation, and strengthen the growth prospects.
RBI keeping options open for June MPC meet: Research author
According to SBI Research, authored by Group Chief Economic Adviser SBI Soumya Kanti Ghosh, the RBI's stance could continue to be withdrawal of accommodation in presence of deficit liquidity. "RBI can always keep the options open in June (monetary) policy," it said.
5.8% average core inflation unlikely to fall: Report
The report also highlighted serious slowdown worries in the home loan market. It argued that the average core inflation rate, which has been 5.8% for more than a decade, is unlikely to fall. The reasons for this are post-pandemic adjustments in health and education spending and the sticky component of transport inflation with fuel costs remaining high.
6.5% repo rate highest in 5 years
The current repo rate of 6.5% is the highest since February 2019. With COVID-19 restrictions easing and inflation falling in many countries, central banks in many countries were moving toward lower rate hikes or pauses. In view of this, the RBI cut down its inflation forecast for the fiscal year 2023-24 to 5.3%.
