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RBI pauses hike in key policy rate bringing cheer to industry

With India;s inflation easing all eyes are now on RBI

The Reserve Bank of India’s (RBI) surprise move to keep interest rates unchanged at 6.5 per cent has brought cheer to the industry as it indicated that the focus may shift on economic growth with inflation projection easing from 5.3 per cent in February to 5.2 per cent in 2023-24. The move will keep borrowing costs stable.

However, based on data, the RBI could even increase rates later.

“Cost conditions have somewhat eased, inflation expectations of households have also eased. On the upside, adverse climatic conditions are a risk to future inflation trajectory,” RBI Governor Shaktikanta Das said, adding that though globally prices have moderated “its descent to the target is proving to be long and arduous.”

He also noted that rising uncertainty in international financial markets and imported inflation pressures need to be monitored.

Since May 2022, the RBI has raised the repo rate—the rate at which the rate at which banks borrow from the central bank – as many as six times. The repo rate was 4 per cent last year in May.

“After six consecutive hikes, RBI MPC’s decision to pause on further increase in rates is a welcome move. With inflationary pressures now taming down, this will bring back focus on growth, credit off-take, consumer spending, Real Estate, Infrastructure and specifically housing sector demand,” said Piyush Gupta, MD, Capital Markets & Investment Services at Colliers India.

The Federation of Indian Export Organisation (FIEO) said that the RBI’s decision will further boost growth through increased investment. “While most Central banks have given more weightage to inflation as compared to growth, RBI stroke a nice balance between the two, giving primacy to growth,” A Sakthivel, President, FIEO said.

Earlier in an interview to the Financial Times, Das said that India’s economic resilience was intact but there was no room for complacency especially with the rising debt distress in South Asia.

The World Bank in its latest India Development Update said that despite rising global challenges, which have led to a moderation in growth, India continues to be among the fastest growing economies in the world.

“The Indian economy continues to show strong resilience to external shocks,” said Auguste Tano Kouame, World Bank’s Country Director in India. “Notwithstanding external pressures, India’s service exports have continued to increase, and the current-account deficit is narrowing.”

Also read: Direct tax collections post robust growth in 2022-2023