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In a surprise move, the six-member Monetary Policy Committee (MPC) on Thursday decided to keep the policy rate unchanged at 6.5 per cent. The pause in repo rate hike comes after six hikes in a row.
Since May 2022, the MPC has increased the policy rate by 250 basis points (bps). These repo rate hikes were preceded by the introduction of a standing deposit facility (SDF) at 40 bps higher than the fixed rate reverse repo. Hence, the effective rate hike since April last year has been 290 bps.
The decision to press the pause button was taken unanimously by the rate-setting body, which has three external members and three members from within the Reserve Bank of India (RBI).
Consequent to the repo rate remaining unchanged at 6.5 per cent, the SDF rate will remain unchanged at 6.25 per cent, and the marginal standing facility (MSF) rate and the bank rate at 6.75 per cent.
The MPC also decided, by a five to one majority, to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.
In his statement, RBI Governor Shaktikanta Das said, “Economic activity remains resilient and real gross domestic product (GDP) growth is expected to have been 7 per cent in 2022-23. Consumer price inflation (CPI) has, however, increased since December 2022, driven by price pressures on cereals, milks, and fruits.”
