RBI MPC pauses repo rate hike

The Reserve Bank of India's monetary policy committee (MPC) on Thursday kept the repo rate unchanged at 6.5% in its first policy statement of the financial year 2023-24.

The standing deposit facility (SDF) rate remains unchanged at 6.25% and the marginal standing facility (MSF) rate and the bank rate at 6.75%.

The monetary policy committee, which began its meeting on April 3, decided unanimously to keep the repo rate unchanged, says RBI governor Shaktikanta Das.

The decision to pause is for this meet only, Das says, adding that the MPC will not hesitate to take further action as maybe required in its further meetings

The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.

The MPC had hiked the repo rate for six consecutive times before it decided to pause today.

The MPC's pause on rate hike comes nearly two months after the RBI governor said that pausing repo rate hike would be 'premature'. To control rising inflation, RBI's MPC had hiked the repo rate by 25 basis points to 6.5% in February.

Several industry bodies expressed concerns over a potential hike in the repo rate. Real estate lobby Confederation of Real Estate Developers' Association of India (CREDAI) had urged the RBI to not increase the repo rate any further, citing the financial challenges faced by developers and the potential impact on housing sales due to the consequential rise in prices and home loan rates. Earlier this week, Assocham President Ajay Singh said the banking regulator needs to take a pause on the interest rate hike as any further rate hike will 'adversely impact' several sectors of the economy.

CREDAI welcomed the MPC's decision. "We laud the RBI for maintaining the repo rate, in a move that is bound to go a long way in sustaining the sales momentum that we've witnessed in the residential segment... This move would provide a further boost for the affordable and mid-income housing segments, in particular," says Boman Irani, president-elect, CREDAI.

On the recent banking turmoil with respect to Silicon Valley Bank and Credit Suisse, Das says that bank failures have brought financial stability risk to the forefront. He, however, assured that the Indian banking system remains sound.

According to the Reserve Bank of India estimates, the country's gross domestic product (GDP) is estimated to grow at 6.5% in 2023-24. Real GDP in Q1 is forecast to grow at 7.8%, Q2 at 6.2%, Q3 at 6.1% and Q4 at 5.9%.

On Tuesday, the World Bank slashed India's GDP growth forecast to 6.3% for the financial year 2023-24 from 6.6% projected earlier citing lower consumption growth and challenging external conditions. Rising borrowing costs and slower income growth will weigh on private consumption growth, and government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures, the World Bank said in latest India Development Update, its biannual flagship publication.