Mumbai: After hiking interest rate by a cumulative 250 basis points in 11 months, the Reserve Bank of India (RBI) on Thursday unexpectedly kept the benchmark rate unchanged as global banking woes added uncertainty to the economic outlook. RBI Governor Shaktikanta Das, however, pledged to hike the interest rate again if needed, saying "it is a pause, not a pivot."
RBI's six-member Monetary Policy Committee voted unanimously to keep the repurchase or repo rate unchanged at 6.50 percent.
Most analysts had expected one final hike of 25 basis points in RBI's current tightening cycle before hitting a pause.
The MPC also decided to retain a policy stance focused on "withdrawal of accommodation" to "ensure that inflation progressively aligns with the target, while supporting growth."
That had been its approach since it started tightening in May 2022.
"MPC unanimously decided to keep rates unchanged in this meeting with readiness to act if the situation so warrants," Das said, while announcing the decisions of the committee. "MPC will not hesitate to take further action as may be required in its future meetings," he added.
He said that MPC is ready to act if necessary as the decision to keep the rate unchanged is "a pause, not a pivot."
Reacting to the decision, Finance Minister Nirmala Sitharaman said, "RBI has taken a good call, I think."
Interest rates have been effectively tightened by 290 basis points in the past year -- a 250 bps increase in the repo rate and a 40 bps increase when the SDF was introduced.
RBI remained cautious about the inflation outlook and relatively upbeat on growth.
"Our job is not yet finished and the war against inflation has to continue until we see a durable decline in inflation closer to the target," said Das.
Das said the global economic scenario has undergone a dramatic shift -- from improving supply conditions, resilient economic activity and financial markets exuding greater optimism at the start of 2023 to the global economy now witnessing a renewed phase of turbulence with fresh headwinds from the banking sector turmoil in some advanced economies.
"Bank failures and contagion risk have brought financial stability issues to the forefront," he said. "Given the stubbornness in inflation, central banks continue to tighten monetary policy, although at a reduced pace."
Explaining the rationale behind MPC's decision to pause rate hike, he said while the 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.
The sudden announcement of an output cut by OPEC+ a few days ago and the resultant jump in crude oil prices is yet another evidence of this volatility, he said.
"When we started the rate cut cycle in February 2019 to provide support to growth, the CPI inflation was around 2 percent and the policy repo rate was 6.50 percent. Now, the policy rate is 6.50 percent but inflation is 6.4 percent (February 2023)," he said.
Looking ahead, the expectation of a record rabi harvest bodes well for easing of food price pressures, he said.
(With PTI inputs)
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