Mumbai, April 6 (FN Bureau) In a respite for borrowers, the Reserve Bank of India’s (RBI) monetary policy committee (MPC) on Thursday decided to keep the policy repo rate unchanged at 6.5 pc. The central bank has been raising the repo rate since May last year and has cumulatively hiked it by 2.5 pc to control inflation which has stayed above its comfort level of 6 pc. The increase in benchmark lending rate has resulted in EMIs for various loans such as home, car and personal loans going up. “The Monetary Policy Committee (MPC) met on 3rd, 5th and 6th April 2023 and assessed the macro-economic situation and its outlook. It decided unanimously to keep the policy repo rate unchanged at 6.50% in this meeting, with readiness to act should the situation so warrant,” said RBI Governor Shaktikanta Das after the bi-monthly monetary policy review. This was the first meeting of the MPC or rate-setting panel in the current financial year 2023-24. As a result of the decision to maintain the benchmark lending rate at current level, the standing deposit facility (SDF) rate will remain unchanged at 6.25 pc; and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 pc.
The MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target while supporting growth. The RBI Governor emphasized that the decision to pause on the repo rate is for this meeting only. Explaining the rationale behind the MPC’s decision, Das said that while recent high-frequency indicators suggest some improvement in global economic activity the outlook is now tempered by additional downside risks from financial stability concerns. “Headline inflation is moderating but remains well above the targets of central banks. These developments have led to heightened volatility in global financial markets as reflected in sizeable two-way movements in bond yields. Fall in equity markets and the US dollar shedding its gains from its peak of September 2022,” he said. “Amidst this volatility the banking and non-banking financial services sector in India remain healthy and financial markets have evolved in an orderly manner. Economic activities remain resilient and real GDP growth is expected to have been 7% in 2022-23,” he further said.
Commenting on MPC decision, Shishir Baijal, Chairman & Managing Director, Knight Frank India said, “Any further hike in the repo rate and lending rates along with sustained inflation could potentially reduce the spending capacity of the consumers which in turn can dampen India’s economic growth. Therefore, the RBI’s decision to pause its rate hike cycle is supportive of economic growth.” Talking about growth outlook, RBI Governor Das said that the government’s focus on capital expenditure, capacity utilisation above long-period average and moderating commodity prices should bolster manufacturing and investment activity. “The drag from net external demand may continue due to increased global headwinds. The protracted geopolitical tensions and global financial market volatility pose downside risks to the outlook,” he said. The RBI has marginally raised India’s real GDP growth forecast for 2023-24 to 6.5% from 6.4% earlier. On inflation, the RBI Governor said that the softening in inflation during November-December 2022 turned out to be transitory with CPI headline inflation breaching the upper tolerance threshold during January-February 2023.
“A sharp turnaround in food inflation drove the pick-up in headline inflation as core inflation remained elevated across a range of goods and services,” he said. Considering all relevant factors and assuming an annual average crude oil price (Indian basket) of US$ 85 per barrel and a normal monsoon, the RBI expects retail inflation to moderate to 5.2% for 2023-24; with Q1 at 5.1%; Q2 at 5.4%; Q3 at 5.4%; and Q4 at 5.2%. The risks are evenly balanced.