RBI keeps repo rate unchanged at 6.50%; retains 'withdrawal of accommodation' stance

RBI MPC meeting April 2023: In a positive surprise, the monetary policy committee (MPC) of the Reserve Bank of India (RBI) on Thursday (April) 6 kept the repo rate unchanged at 6.5 per cent. It was the first monetary policy meet of the financial year 2023-24 (FY24).

The repo rate is the rate at which the central bank of the country lends money to commercial banks in case of any shortfall of funds. 

All the other policy rates, too, remain unchanged.

RBI Governor, while announcing the policy, said the MPC members unanimously decided to maintain the status quo on the repo rate while the decision to retain the stance - withdrawal of accommodation, was supported by five out of six members. The governor said that the stance is meant to ensure inflation aligns with the target while focusing on growth.

Catch the latest updates on the first RBI policy review of the new financial year

"When we started the rate cut cycle in February 2019 to provide support to growth, the CPI inflation was around 2 per cent and the policy repo rate was 6.50 per cent. Now, the policy rate is 6.50 per cent but inflation is 6.4 per cent (February 2023). Overall, inflation is above the target and given its current level, the present policy rate can still be regarded as accommodative. Hence, the MPC decided to remain focused on the withdrawal of accommodation," Shaktikanta Das said.

Four in five economists polled by Zee Business had projected that RBI will increase the repo rate by 25 basis points while the remaining one expected a pause.

“Given that Federal Reserve & European Central Bank have gone ahead with a rate hike in spite of recent global developments and Q4FY23 inflation numbers are higher than RBI projections, RBI to hike repo rate by 25 bps to 6.75 per cent. Given Real policy rates upward of 100bps rate basis, significant monetary tightening over the last year and the lag with which monetary policy operates, we expect RBI to change its stance to “Neutral” and stay on hold for the rest of CY23," Deepak Agrawal, CIO – Debt, Kotak Mahindra AMC, Kotak Mahindra Asset Management Company had said in a pre-policy note.

That said, the GDP growth for the current fiscal year has been pegged at 6.5 per cent while the FY24 inflation projection is 5.2 per cent. Real GDP growth for Q1FY24 is estimated at 7.8 per cent, Q2FY24 at 6.2 per cent, Q3FY24 at 6.1per cent, and Q4FY24 at 5.9 per cent.

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At the beginning of his speech, the RBI Governor said that 2023 started on a good note; however, the global economy is facing a renewed phase of turbulence. "Bank failures and contagion risk have brought financial stability issues to the forefront. Given the stubbornness in inflation, central banks continue to tighten monetary policy, although at a reduced pace. Inflation globally has been moderated in recent months, but its descent to the target is proving to be long and arduous," Das added.

Post-policy, Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities, said the RBI's decision to go for a pause was a positive surprise and they believe the RBI is concerned about the uncertainty from global financial markets and the pause is reflective of this concern.

"We view this policy as a hawkish pause. The tone of the policy remains concerned with inflation, especially core inflation and remains focused on reaching the 4 per cent target over the medium term. We believe the risks to this outlook are skewed towards the downside. We expect the RBI MPC to remain on an extended pause. Scope for further hikes is limited given our growth-inflation outlook and impact of the past rate hikes on the same," Rakshit added.

Meanwhile, Anuj Puri, Chairman of ANAROCK Group, said, "Much against general expectations, the RBI decided to keep the repo rates unchanged at 6.5% today. This is indeed good for the residential real estate market, which faces a tough road ahead amid massive layoffs by large corporates the world over. India is not decoupled from global economic dynamics and their invariable impact on the housing uptake here. The RBI’s decision to keep the repo rates unchanged comes as a welcome respite to homebuyers."