Reserve Bank of India: In its first meeting for the fiscal year 2023–2024, the Reserve Bank of India’s Monetary Policy Committee (MPC) surprised most analysts by deciding against raising interest rates further. This decision will be welcomed by borrowers, including those with mortgages, as some have seen their repayment periods extend well into their retirement due to the cumulative rate increase of 2.5 percentage points since May 2022.
Most economists do not anticipate any additional rate hikes this year
There are good reasons to view the most recent decision as a return to pragmatism rather than appeasing inflation hawks at the expense of headwinds to the domestic economy, especially at a time when global economic prospects remain gloomy, even though the MPC resolution has played this decision as a pause rather than a pivot — the monetary policy stance is still withdrawal of accommodation. Most economists do not anticipate any additional rate hikes this year, barring a significant upward shock to inflation.
MPC decided to keep the policy rate unchanged
The MPC unanimously opted to hold rates steady without committing to a specific future course of action, RBI Governor Shaktikanta Das said, “The MPC decided to keep the policy rate unchanged to assess the progress made so far.” In the two months since the MPC’s previous meeting in February, a lot has changed. Domestically, headline retail inflation for the months of January and February—both figures were reported following the MPC meeting in February—surpassed the RBI’s 6% upper limit once more after falling below it in the months of November and December. This raised the likelihood of a second rate increase at the April meeting. Six out of the thirty-three analysts surveyed by Bloomberg predicted rates to remain at 6.5% in today’s MPC announcement.
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GDP growth for 2023–2024 by ten basis points
The World Trade Organization (WTO) forecasts that the volume of global commercial trade will increase by 1.7% in 2023, which is even less than the 2.7% growth that was “smaller than expected” in 2022. Additionally, this will harm India’s chances for economic growth. In his statement, Governor Das added, “What we are witnessing today is unprecedented uncertainty in geopolitics, economic activity, price pressures, and financial markets never seen before.” The MPC’s pessimistic estimate of the future of the world economy contrasts sharply with its appraisal of the local economy. It has raised its estimate of GDP growth for 2023–2024 by ten basis points, or one hundredth of a percentage point, to 6.5%, and anticipates that headline inflation will reduce to 5.2% in that time period.
RBI has left the door open for additional action
The RBI’s main message during the April meeting was “Enough (tightening) might just be enough. Our prediction that the RBI would halt and maintain its posture of ‘withdrawal of accommodation’ was out of the ordinary, but it came true. This, in our opinion, indicates a forward-looking monetary policy that recognises higher global economic risks, an inflation trajectory that is under control, and the need to wait and watch in order to gauge the effects of the recent abrupt policy tightening. In accordance with our predictions, the RBI has left the door open for additional action if the macroeconomic environment changes. Aurodeep Nandi, an economist with Nomura, wrote in a note, “We maintain our view of a policy pause from here on and 75bp of rate decreases beginning in October.
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