Tuesday, May 30, 2023
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RBI hits pause on interest rate hike, says won’t hesitate to act if needed

Today, the Reserve Bank of India held the repo rate unchanged, holding the key benchmark interest rate at 6.5 percent, adding that it would not hesitate to act in the future if the circumstances so required.

Since last May, the central bank has increased rates by 250 basis points.

Governor of the Reserve Bank of India (RBI), Shaktikanta Das, said that the central bank’s policy stance remains centred on “removal of accommodation,” indicating that more rate rises might be considered if required. The suspension in rate increases is “just for this conference,” Shaktikanta Das said.

Real Gross Domestic Product (GDP) growth for 2023–24 is projected at 6.5%, with the 1st Quarter (Q1) at 7.8%, the 2nd Quarter (Q2) at 6.2%, the 3rd Quarter (Q3) at 6.1%, and the 4th Quarter (Q4) at 5.9%, according to the RBI governor, who also stated that economic activity remains robust and that headline inflation is projected to moderate in Financial Year (FY) 2023–24.

Previously, Governor Shaktikanta Das had said that a premature stop in monetary policy action during a tightening cycle would be a costly policy blunder.

In addition, the governor noted that specific forward guidance on the future course of monetary policy would be unhelpful in a world characterised by significant uncertainty.

The year-over-year increase in retail inflation was 6.44 percent in February, down from 6.52 percent in January, but over the RBI’s stipulated target range of 2% to 6%.

The recent decision by OPEC to reduce supply has resulted in an increase in oil costs, which might contribute to imported inflation.

Private company surveys done by S&P Global revealed that India’s manufacturing sector increased at its quickest rate in three months in March, while growth in the services sector dropped from February’s 12-year high.

Several experts believe that hints of turmoil in the U.S. and European banking sectors may result in tighter financial conditions and a more severe global economic downturn. Imports falling and bank lending demand levelling off are other early indicators of a recession in India.

After being deficient at the end of March, the liquidity of the banking system has recovered lately.



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