RBI applies brake on repo rate hike; here's what analysts have to say

The central bank conducts six bi-monthly reviews of its monetary policy in a financial year.

Five out of six members of MPC voted to remain focused on the policy stance of 'withdrawal of accommodation' to ensure inflation aligns with the target while focusing on growth, RBI Governor Shaktikanta Das said at the post-meeting remarks.

Shaktikanta Das-headed Monetary Policy Committee (MPC) conducted its three-day meeting on April 3, April 5 and April 6 even as the central bank has raised the repo rate by 250 basis points cumulatively since May 2022.

At the last MPC meeting of the RBI in early February, it decided to raise the repo rate by 25 basis points to 6.5 per cent to manage inflation.

Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.

Retail inflation had again been staying above the RBI's tolerance limit of 6 per cent for two consecutive months since January. In February, India's retail inflation stood at 6.44 per cent, while in January, it was at 6.52 per cent.

India's retail inflation was above RBI's 6 per cent target for three consecutive quarters and had managed to fall back to the RBI's comfort zone only in November 2022.

Following are some of the excerpts of views from analysts, economists and experts on the RBI's monetary policy meeting outcome:

Subhrakant Panda, President, FICCI

The pause in policy repo rate by RBI is a welcome move given the evolving macro-economic and financial markets scenario. The renewed phase of turbulence that Central Banks are grappling with globally given developments in the banking sector, geopolitics and slowdown in growth and trade flows warranted a prudent response RBI has delivered.

While the Indian economy is showing signs of resilience with growth being broad-based, the outlook globally is somewhat uncertain. RBI's measured stance articulated today is appropriate as earlier rate hikes are still flowing through the system, and inflation is projected to trend downwards, albeit slowly; any further hike in the policy rate at this juncture would have affected growth, which must be the priority while keeping a close watch on the inflation trajectory.

Dinesh Khara, Chairman, State Bank of India

RBI's decision to hike the rate was in consonance with the expectations. Continuing strong job data from Fed has made monetary policymaking a delicate balancing act for emerging economies' central banks.

Dhiraj Relli, MD and CEO, HDFC Securities

The underlying question - Are we done with the rate hikes? Continuing with the 'withdrawal of accommodation' stance, could provide elbow room to take one more rate hike later which would be data-dependent, forward growth-inflation dynamics and upside risks to food inflation... After raising the repo rate by 250 bps, RBI seems to have adopted a wait-and-watch approach.

Rajani Sinha, Chief Economist, CareEdge

It is interesting that while RBI has paused on the policy rate front, it has also strongly reiterated its commitment to bringing down inflation. Given the uncertain global environment and lingering risks to inflation, it is only apt that the Central Bank keeps the window open for further monetary policy tightening in future if required. However, with inflation likely to trend downward from the current level, it is unlikely that RBI will have to hike rates further in 2023. We expect a status quo in the policy rate in 2023.

Rajan Bandelkar, President, National Real Estate Development Council (NAREDCO)

By keeping the policy repo rate unchanged, the RBI has provided a much-needed boost to the real estate industry, which is already witnessing positive momentum. This decision offers stability and certainty to developers, investors, and homebuyers, and can further stimulate demand for housing loans. As a result, the industry can keep the positive momentum alive and continue to contribute to the overall economic growth of the country.

Sanjiv Bajaj, President, Confederation of Indian Industry

We strongly welcome the RBI's move to decouple from the global tightening cycle and pause interest rate hikes, which is in line with what CII had been advocating for long now. We agree with the central bank's observation that the lagged impact of the past rate hikes should be allowed to percolate into the system, and not stifle demand by further rate hikes. Though the domestic demand impulses remain healthy, the headwinds from the global banking stress have gained pace, hence it was important for the central bank to remain cautious in its stance. This move by the RBI will help to bolster business sentiments by containing the rise in borrowing costs which have constricted the pricing power of firms

Piyush Baranwal, Senior Fund Manager, WhiteOak Capital Asset Management

After today's pause in the rate hike cycle, we believe that the bar for future rate hikes has moved higher and we may be in for a prolonged pause phase. If CPI does trend in line with RBI's projection of 5.2 per cent in FY24, the repo rate at 6.5 per cent creates sufficiently positive real rate, which when coupled with steady contraction of systemic liquidity should provide necessary disinflationary force for CPI to move towards RBI's target.

Sandeep Yadav, Senior Vice President, Head - Fixed Income, DSP Mutual Fund

RBI paused, as per our expectations. We are not surprised that RBI mentioned that the pause is only for this MPC, and this action should not be extrapolated to future policies. It is too early for RBI to commit to a continued pause. There are still some risks to inflation.

Nonetheless, we believe that unless inflation rises unexpectedly, we have hit the peak rates. RBI should most probably not raise rates further. As in the past, RBI would take time to confirm this policy stance. Thus, a pause of rates may only be reinforced in the upcoming policies - when there is more clarity on data.

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

The MPC's unanimous pause has come as a bit of a surprise. But the RBI Governor has hastened to add that they will hike again if need be. This pause can be seen as a wait-and-watch response to see how the previous six rate hikes will impact inflation and growth.

Anand Naiknavare, Head Business Process, Naiknavare Developers

In the backdrop of a global slowdown, the RBI's decision to hold the repo rate will provide resilience to the credit lending sector and stabilise real estate consumption.

Palka Arora Chopra, Senior Vice President, mastertrust

Today's RBI policy is surely a short-term relief for the market as repo rate remains unchanged at 6.50 per cent post six consecutive rate hikes. However, inflation trends need to be closely watched.

Passive investors can remain cautiously optimistic about the market. The key rationale behind the pause in rate hikes is improving global sentiments and moderating mounting inflation.

Anitha Rangan, Economist, Equirus

While there may be many reasons to pause, the fact that RBI has noted their "readiness to act should the situation warrant" and "job is not yet finished" suggests that the pause in all likelihood is temporary. If the US Fed hikes, RBI will be bound to hike once more. The recent oil supply action from OPEC is a reminder of global uncertainty. There may be room to pause but not led the guard down!

Niranjan Hiranandani, Vice Chairman, National Real Estate Development Council (NAREDCO)

This act of relief will restore confidence in homebuyers' sentiment and boost demand rally in real estate. The industry body now calls for fiscal intervention from the Government of India to cool the inflationary heat caused by persistent geopolitical turbulence caused by the collapse of foreign banks, supply chain challenges, and global financial instability. Additionally, devising innovative flexi or step-up EMI schemes by the banks and FIIS will be conducive for the market players to onboard new home buyers in the high-interest rate regime.

Anuj Puri, Chairman, ANAROCK Group

This is indeed good for the residential real estate market, which faces a tough road ahead amid massive layoffs by large corporates the world over. India is not decoupled from global economic dynamics and their invariable impact on the housing uptake here. The RBI's decision to keep the repo rates unchanged comes as a welcome respite to homebuyers.

Rumki Majumdar, Economist, Deloitte India

While prioritising stability in inflation is the need of the hour, the government cannot afford to overlook growth. India needs investment to improve supply to meet the rising demand. Low credit availability will impact capacity building, and thereby the supply side. Too much tightening will result in a vicious circle of low investment leading to supply constraints, thereby causing inflationary pressures.

Abheek Barua, Chief Economist, HDFC Bank

The RBI successfully delivered a hawkish pause in todays' policy announcement keeping the policy rate unchanged at 6.5 per cent while keeping the door open for further rate action. The central bank kept its stance unchanged at "withdrawal of accommodation", justifying it by still looming inflationary risks. (ANI)