Repo rate unchanged: Here’s why RBI MPC took a pause this time

The monetary policy committee (MPC) of the Reserve Bank of India (RBI) on April 6 decided to maintain the status quo on the repo rate at 6.50 per cent. Other policy rates were also kept unchanged.

“The monetary policy committee decided unanimously to keep the policy repo rate unchanged at 6.5 per cent in this meeting of MPC with readiness to act should the situation so warrant,” said RBI governor Shaktikanta Das.

The governor also highlighted some of the reasons behind the decision to pause the rate hike for this time.

“The MPC decided to keep the policy rate unchanged to assess the progress made so far while closely monitoring and evolving the inflation outlook,” said Das during his address. He further stressed the fact that while the recent high-frequency indicators suggest some improvement in global economic activity, the outlook is now tempered by additional downside risk from financial stability concerns.

“Headline inflation is moderating but remains well above the target. These developments have led to heightened volatility in global financial markets as reflected in sizeable two-way movements in bond yields,” asserted Das.

Another major reason behind the rate hike pause for this time was the weighted average credit rating (WACR). Das mentioned that there have been repeated rate hikes since last May and those have been transmitted to WACR. WACR relates to the weighted average rating regarding all bonds in a bond fund. This rating procedure provides investors with an idea of a fund's credit quality. It also helps to identify the overall risk involved with a bond portfolio.

Further, the governor said that the MPC decided to maintain a 'withdrawal of accommodation' stance.

“Overall inflation is above the target and given its current level present policy, the rate can still be regarded as accommodative. Hence the MPC decided to remain focused on the withdrawal of accommodation,” said Das.

Also Read: RBI MPC meeting Live | Zee Business