The Reserve Bank of India (RBI) surprised markets 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.
The central bank 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.at 6.50% in a unanimous decision.
Having achieved a reasonable positive level of real policy rate, it appears that the RBI now prefers to go slow while adopting a data-dependent mode. Room for additional rate hikes has been retained with MPC’s policy stance continuing to remain unchanged at ‘withdrawal of accommodation’. While the RBI has stayed put with its forecast of 6.5% growth , growth worries remain rather elevated and hence the focus is shifting away from inflation, as we have been expecting.
The MPC's unanimous pause is a reflection of the economic uncertainties surrounding policymaking today. However, as emphasised by the RBI Governor, this pause may not be interpreted as the end of the battle against inflation. We see today’s action as a breather in this rate hike cycle with financial stability taking precedence amid global bank failures and associated tight financial conditions. With stance remaining unchanged, MPC has now become data dependent.
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