MUMBAI: Much against the wider expectations of the markets of a marginal upward revision in the key rates, the Reserve Bank of India (RBI) today announced that they have kept the benchmark repo rate unchanged. 

Most market analysts were expecting that after raising rates by a cumulative of 250 basis points (2.5%) in the last 11 months RBI would most likely announce a final 25 basis points (bps) hike, however, the central bank's six-member Monetary Policy Committee (MPC) has voted to keep the repo also called as the repurchase rate unchanged at 6.50 per cent.

Dhiraj Relli, MD & CEO of HDFC Securities said, "In a surprise move, RBI’s MPC unanimously voted to keep the repo rate unchanged at 6.5% against market expectation of 25bps hike. MPC's decision in favour of a pause came despite elevated headline inflation numbers in the last two months (Jan & Feb’23 - above 6% mark), high sticky core inflation while growth indicators have been holding up quite well." 

Relli said that the pause may reflect MPC members' intention of not upsetting the growth momentum despite persistently high inflation. Consequently, the RBI increased the real GDP projection to 6.5% for FY24 (earlier projection was 6.4%) which is higher than street expectations. CPI inflation forecast for FY24 is at 5.2%.

Since May 2022, the RBI has hiked the repo rate, first by 40 bps then by 50 bps in each of the three successive meetings and in December 2022, the MPC voted to hike the repo rate by 35 bps. 

Speaking on the occasion RBI Governor Shaktikanta Das, however, said that not changing the rates at this juncture was just a pause however the MPC will be prepared with all readiness to act as and if the situation so warrants.

According to Das, the MPC has taken into consideration that going ahead there was a likely moderation in inflation and the recent surveys indicate a reduction in the cost concerns and a drop in household inflation expectations. 

He said that RBI was keeping a keen eye on the evolving global financial stability concerns, especially the fact that global banking woes were adding uncertainty to the economic outlook.

The central bank has also considered the projection in oil prices that have lowered and a good rabi harvest factored in the build-out of the future inflation trajectory. 

In the recent past, trade and industry bodies have also expressed their opinion that there should be a pause in the hike of interest rates. Ajay Singh who was recently appointed President of the Associated Chambers of Commerce and Industry of India (ASSOCHAM), and is also the Chairman and Managing Director of SpiceJet, said this pause should be in the wake of uncertainties in the global business environment.

The MPC consists of RBI Governor Shaktikanta Das, deputy governor Michael Debabrata Patra and executive director in charge of monetary policy Rajiv Ranjan along with Ashima Goyal a member of Prime Minister Narendra Modi's economic advisory council, Jayanth R Varma finance professor at the Indian Institute of Management, Ahmedabad, Shashanka Bhide senior advisor at the National Council for Applied Economic Research.

With the key benchmark rates kept unchanged banks are not likely to revise their interest rates which could come as some relief, especially to retail customers who are always worried about increased EMI and other costs.