An unexpected pause

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), in its first meeting this fiscal year, surprised financial markets by unanimously deciding to leave the policy repo rate unchanged at 6.50 per cent. Most market participants, including eight out of 10 respondents polled by this newspaper, expected the rate-setting committee to increase the repo rate by another 25 basis points. But the MPC decided not to increase the policy rate further at this juncture, and assess how the cumulative rate increase so far works through the system. As RBI Governor Shaktikanta Das noted in his statement, the central bank has effectively raised policy interest rates by 290 basis points since April 2022 — accounting for the introduction of the standing deposit facility at 40 basis points above the fixed-rate reverse repo, which was the operating rate at that point.