The Reserve Bank of India (RBI) did an unexpected move by holding its key repo rate steady on Thursday after six consecutive hikes, saying it was closely monitoring the impact of recent global financial turbulence.
RBI said its policy stance remains focused on "withdrawal of accommodation", signalling it could consider further rate hikes if necessary. The pause in rate hikes is "for this meeting only", said RBI Governor Shaktikanta Das. Most analysts had expected one final 25 basis point hike in the RBI's current tightening cycle, which has seen it raise the repo rate by a total 250 bps since May last year.
Here are the likely reasons why RBI did not go for a rate hike:
RBI has revised the GDP up to 6.5% from 6.4% while inflation estimates were revised down.
RBI now going on an extended pause throughout FY24 while liquidity conditions continue to tighten. Short term yields could therefore continue to see some pressure, according to Sakshi Gupta, Principal economist, HDFC Bank.
Financial stability concerns appear to have pre-empted a pause as the MPC assesses the impact of its cumulative 250 bps of rate hikes.
The RBI had a tone on growth was upbeat, validated by a small upward revision to the FY24 growth target. Oil projection was cut, besides factoring in the assumption of a normal monsoon.
With policymakers highlighting risks to global financial stability, the tightening cycle has likely slipped into an extended pause, barring unexpected shocks. Beyond anchoring inflationary expectations, the impact of tighter monetary policy on supply-side shocks, especially poor weather conditions, is limited, instead requiring administrative measures and fiscal support
This article taken by livemint.com
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