After six hikes, RBI keeps repo rate unchanged at 6.5%
The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) stopped its rate-hike cycle to keep the repo rate unchanged at 6.5%, RBI Governor Shaktikanta Das announced on Thursday. Das said India's GDP grew 7% in 2022-23, indicating resilient economic conditions amid a renewed phase of global turbulence. He underscored that the MPC was ready to act if the situation warranted.
Why does this story matter?
The RBI hiked the repo rate six consecutive times since May 2022, with the last increase being in February during MPC's last policy review for the fiscal year 2022-23. The MPC has increased the key rate by 250 basis points or 2.5% since May last year. The repo rate is the interest rate that the RBI charges commercial banks while lending them money.
March's turbulence neutralized positive economic signs: Das
Das said that the year 2023 began on a promising note with improvements in supply conditions and economic activity. "In just about a few weeks in the month of March, this narrative has undergone a dramatic shift. The global economy is now witnessing a renewed phase of turbulence with fresh headwinds from the banking sector turmoil in some advanced economies, " he said.
Previous repo rate hikes didn't have desired impact
A State Bank of India's (SBI) research predicted a pause in the repo rate as the impact of the previous hikes reportedly did not percolate to the ground. The research highlighted concerns about a material slowdown in the affordable housing loan market and financial stability taking center stage. Tightening the repo rate beyond a certain level is likely to hurt growth.
GDP growth for FY24 predicted at 6.5%
Additionally, the MPC projected India's real GDP growth at 6.5% for the financial year 2024. The real GDP for the first quarter (Q1) of this financial year is forecast to grow at 7.8%, Q2 at 6.2%, Q3 at 6.1%, and Q4 at 5.9%. Das said that the RBI will remain focused on the withdrawal of monetary policy accommodation.
