It marginally raises FY24 GDP growth projection to 6.5%
Mumbai: After hiking interest rate by a cumulative 250 basis points in 11 months, the Reserve Bank of India (RBI) on Thursday unexpectedly kept benchmark rate unchanged as global banking woes added uncertainty to the economic outlook.
RBI Governor Shaktikanta Das, however, pledged to hike the interest rate again if needed, saying the decision to pause was “for this meeting only”.
RBI’s six-member monetary policy committee voted unanimously to keep the repurchase or repo rate unchanged at 6.50%.
Most analysts had expected one final hike of 25 basis points in RBI’s current tightening cycle before hitting a pause.
The MPC also decided to retain a policy stance focused on “withdrawal of accommodation” to “ensure that inflation progressively aligns with the target, while supporting growth.”
That had been its approach since it started tightening in May 2022.
“MPC unanimously decided to keep rates unchanged in this meeting with readiness to act if the situation so warrants,” Das said while announcing the decisions of the committee. “MPC will not hesitate to take further action as may be required in its future meetings.”
He said the MPC is ready to act if necessary as the decision to keep the rate unchanged is “a pause, not a pivot”.
Reacting to the decision, Finance Minister Nirmala Sitharaman said, “RBI has taken a good call, I think.”
Interest rates have been effectively tightened by 290 basis points in the past year – a 250 bps increase in the repo rate and a 40 bps increase when the SDF was introduced.
The RBI remained cautious about the inflation outlook and relatively upbeat on growth.
The central bank marginally upped its forecast of India’s GDP growth in the current fiscal year starting April 1 to 6.5% from 6.4% projected earlier.
This compares with an expected 7% growth in 2022-23 (April 2022 to March 2023) fiscal.
The central bank lowered its inflation forecast to 5.2% for 2023-24 from 5.3%, with Das saying “war against inflation has to continue”.
He said it was necessary to evaluate the cumulative impact of past interest rate hikes.
The surprise pause comes even as core inflation stayed above 6% for 17 straight months.
“Our job is not yet finished and the war against inflation has to continue until we see a durable decline in inflation closer to the target,” he said.