India Inc cheers RBI stance to hold interest rate

India Inc cheered the Reserve Bank's stance to hold key interest rate on Thursday terming it a "prudent" move in the wake of headwinds emanating from global banking stress and said the move will improve business sentiments by containing the rise in borrowing costs.

Industry bodies cautioned that any further hike in the benchmark repo rate at this juncture would have affected India's economic growth even as domestic demand impulses remain healthy.

Sanjiv Bajaj, President, CII said the industry body agrees with the central bank's observation that the lagged impact of the past rate hikes should be allowed to percolate into the system, and not stifle demand by further rate hikes.

Though the domestic demand impulses remain healthy, headwinds from the global banking stress have gained pace, hence it was important for the central bank to remain cautious in its stance. This move by RBI will help bolster business sentiments by containing the rise in borrowing costs which have constricted the pricing power of firms, Bajaj added.

Subhrakant Panda, President, FICCI said, "The pause in policy repo rate by RBI is a welcome move given the evolving macro-economic and financial markets scenario. The renewed phase of turbulence that central banks are grappling with globally given developments in the banking sector, geopolitics and slowdown in growth & trade flows warranted a prudent response which RBI has delivered."

Assocham Secretary General Deepak Sood termed the RBI's pause a "prudent stance in the wake of high level of volatility in the global financial markets and geopolitical events".

Shiv Parekh, Founder hBits noted that it was important that RBI evaluated the cumulative effects of the past hikes. Keeping the repo rate unchanged at 6.50% will add a wave of relief across industries especially the real estate sector.

He explained, "There needs to be a balancing act for growth along with tightening monetary policy to tame inflation. At this point of time, it was important to hold the rates. This will definitely act as the boost needed by the sector. Inflation has been high due to external factors as well. Now businesses will be able to generate more employment opportunities due to the growth effected through easy money availability."

Ankit Goel, Director at Goel Ganga Developments said, "This RBI judgement was crucial for assessing the overall impact of earlier rises. In order to control inflation, monetary policy must be tightened while maintaining growth. By maintaining the repo rate at 6.50%, it will provide some calm to the economy, and especially the real estate market."

"Due to six consecutive rate increases, the market sentiments were shaky. Due to the high rate of working capital combined with real estate, several sectors were also impacted. It was crucial to keep the rates at this time rather than raise them once more. This will undoubtedly be excellent news for the industry as a whole. Because of external forces that have contributed to rising inflation, firms will only be able to create additional jobs when there is genuine opportunity and easier access to capital," he added. 

The Reserve Bank of India on Thursday hit the pause button and decided to keep key benchmark policy rate at 6.5 per cent even as inflation is trending above its tolerance level. The rate increase has been paused after six consecutive rate hikes aggregating to 250 basis points since May 2022.