The RBI had the option of a rate hike or a pause. It opted for the latter. The MPC decided to keep the policy repo rate unchanged at 6.5%.
In May 2020, it was at 4%. Since May 2022, it has been steadily rising from 4.40% to 6.50% in February 2023. Home loan interest rates have gone up from 6.5% to around 8.75%. The pause will be welcome.
However, as emphasized by the RBI Governor, this pause may not be interpreted as the end of battle against inflation. While inflation is likely to soften, we are far from MPC’s eventual target of 4% headline CPI.
According to Prithviraj Srinivas, Chief Economist at Axis Capital, "Given elevated inflation and resilient domestic demand, the bias is for further rate hikes in 2023. As soon as the MPC sees confidence that the world is not staring at another 'Lehmann-moment' or GFC, it will likely continue with further rate hikes to contain inflation”
RBI: Reserve Bank of India
MPC: Monetary Policy Committee
GFC: Global Financial Crisis
