India pauses rate hikes in surprise decision
The Reserve Bank of India (RBI) surprised markets by holding its key repo rate steady on Thursday after six consecutive hikes, saying it was closely monitoring the impact of recent global financial turbulence on the economy.
The Reserve Bank of India (RBI) surprised markets by holding its key repo rate steady on Thursday after six consecutive hikes, saying it was closely monitoring the impact of recent global financial turbulence on the economy.
The central bank said its policy stance remains focused on “withdrawal of accommodation”, signalling it could consider further rate hikes if necessary, but a number of economists now expect the central bank to remain on hold.
STATEMENT OF RBI GOVERNOR
“It is a pause, not a pivot,” RBI Governor Shaktikanta Das said at a media conference after the monetary policy announcement.
The monetary policy committee (MPC), comprising three members from the central bank and three external members, retained the key lending rate or the repo rate (INREPO=ECI) at 6.50%.
Most analysts had expected one final 25 basis point hike in the RBI’s current tightening cycle, which has seen it raise the repo rate by a total 250 bps since May last year.
“We expect the RBI to maintain an extended pause and evaluate the lagged impact of previous rate hikes and global uncertainties on growth-inflation dynamics,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.
Some other central banks, including in Canada, Australia and Indonesia, have similarly paused, while the U.S. Federal Reserve, Bank of England and the European Central Bank have indicated they may pause, to assess the impact of past hikes and banking sector turmoil on growth and inflation.
“We have to be extremely prudent in our actions,” Das said in his statement.
While the central bank has taken the decision to pause rate hikes in light of global macroeconomic and financial conditions, “our job is not yet finished and the war against inflation has to continue”, Das said, reiterating the resolve to bring inflation back within the central bank’s target band of 2%-6%.
Retail inflation rose 6.44% year-on-year in February, easing from 6.52% in January but has remained above the central bank’s mandated target range for 10 out of the last 12 readings.
The central bank sees inflation at 5.2% in 2023-24, and GDP growth is seen at 6.5% in the financial year beginning April 1.
“With unyielding core inflation, we remain firm and resolute in our pursuit of price stability which is the best guarantee for sustainable growth,” said the committee in its statement.
“The impact of our actions over the past 12 months is still playing out and would increasingly weigh on the future inflation trajectory.”
It is necessary to assess the cumulative impact of actions taken so far, said Das.
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