Repo rate remains at 6.5% ‘a hawkish pause’ implying ‘India’s real policy rate will hover around 1% during 2023-24’

The Reserve Bank of India (RBI) raised the repo rate in six consecutive policies but surprised everyone by putting a pause on its rate hike cycle, even as concerns about global financial stability became visible.

The Tech Panda asked what the economists think.

The policy appears to be a hawkish pause as the MPC turns data dependent whilst it awaits the monetary efficacy from prior rate hikes to play out into the deposit and lending rates

Achala Jethmalani, Economist at RBL Bank

Achala Jethmalani, Economist at RBL Bank, says, “The policy appears to be a hawkish pause as the MPC turns data dependent whilst it awaits the monetary efficacy from prior rate hikes to play out into the deposit and lending rates.

“With the Governor stating that today’s pause on policy rates is for this policy only, it has the elbow room to act on rates if inflation readings surprise on the upside. Basis the current growth-inflation dynamics and the global backdrop, the Repo Rate is likely to peak out at 6.50-6.75% with a possibility of a final 25bps to be delivered in 1H FY24.”

It was important for the RBI to leave the policy rate at a level, which can be kept unchanged for a long time, as against hiking rates very aggressively now and building up pressure for cutting the same only in few months

Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank

Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank, says the RBI’s “surprise” pause on the repo rate in April is completely in line with their expectations.

“In fact, the 6-0 voting in favour of a pause is stronger than our expectation. With the likely softening of CPI to low- to mid-5% levels in the coming month, the current repo rate of 6.5% implies that India’s real policy rate will hover around 1% during 2023-24, while maintaining a policy rate differential of about 1.5% with the US. This clearly helped the decision of a pause on the repo rate,” he says.

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In the current EBLR regime of immediate and fuller pass through of repo rate hikes to lending rates, it is heartening to see a more balanced and nuanced approach from the MPC, he added.

“The material narrowing of trade and current account deficits and range-bound INR must have offered the MPC better comfort for pursuing a more “Fed-independent” monetary policy. It was important for the RBI to leave the policy rate at a level, which can be kept unchanged for a long time, as against hiking rates very aggressively now and building up pressure for cutting the same only in few months,” he explained.

RBI’s continued commitment to price, financial stability, and sustained growth will result in robust macro-economic growth

Satish Nair, Head of Treasury and Corporate Affairs, Vastu Housing Finance

Satish Nair, Head of Treasury and Corporate Affairs, Vastu Housing Finance, too had the same expectation.

“After February’s hike of 25 basis points to 6.5%, we expected a pause in the hikes as inflation was expected to be range bound and to support economic growth. The housing sector is set on an upward growth trajectory; however, inflation needs to be watched. RBI’s continued commitment to price, financial stability, and sustained growth will result in robust macro-economic growth,” he says.