RBI keeps repo rate unchanged: What it means; experts share views

Governor Shaktikanta Das announces that RBI's Monetary Policy Committee (MPC) has unanimously decided to keep the repo rate unchanged at 6.50 per cent.

In an unexpected turn of events, the Reserve Bank of India (RBI) has decided not to increase the repo rate from the current 6.50 percent. The revelation was made earlier this morning by RBI Governor Shaktikanta Das, who announced that the Monetary Policy Committee (MPC) unanimously decided not to change the repo rate.

“The monetary policy committee unanimously decided to keep the repo rate unchanged at 6.50 percent,” Das said.

“The MPC also decided by a majority of five out of six members to remain focused on ‘withdrawal of accommodation” to ensure that inflation progressively aligns with the target while supporting growth,” the RBI governor added.

However, Das revealed that the decision to halt the hike in the repo rate is temporary and MPC won’t hesitate to increase the repo rate in subsequent meetings. Since May 2022, the RBI had increased by 250 bps – in a span of 11 months.

Experts speak

Anu Aggarwal, President, Corporate Banking, Kotak Mahindra Bank said, “Leaving the policy rates unchanged is very welcome news, especially considering the nervousness that had built up post the OPEC production cut. I think RBI has taken cognizance that there is a good 80-basis points favourable base effect from March that will ease inflation. I expect interest rate stability will boost Capex plans, many of which have been announced but funding tie-ups are still in process.”

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said, “RBI’s pause comes despite the previous readings being elevated above 6%. Given today’s policy decision we expect the RBI to maintain an extended pause and evaluate the lagged impact of previous rate hikes and global uncertainties on growth -inflation dynamics.”

Sujata Guhathakurta, President-Debt Capital Market and Infrastructure Financing, Kotak Mahindra Bank said, “Finally a pause! The bond market welcomed the move with yields softening by 10 basis points across the curve. The improving CAD, stronger economy, global softening of rates all aided this call. Overall a welcome relief, though with cautionary commentary by the RBI governor on keeping a close watch on inflation and global developments.”

Dr. Samantak Das, Chief Economist and Head – Research and REIS, India, JLL, remarked, “RBI has taken a bold step in keeping the repo rate unchanged at 6.5% backed by the country’s macro-economic resilience, robust banking system and strong financial markets. This is the right step to assess the impact of the previous six consecutive rate hikes working their way through the current inflationary cycle and overall economy.”

“This is a welcome move for the real estate industry wherein the RBI has heeded the call from various stakeholders. India’s residential markets have maintained their trajectory with the first quarter of 2023 registering robust sales growth of 20% y-o-y while also hitting a 15-year high. A new wave of optimism with improving consumer confidence is seen resulting in rising sales due to sustained buying. Given that the affordability synergy was under challenge with home loan EMIs rising by 15-17% from April 2022 and home prices also increasing during the same period by 4-12%, the current status quo in policy rate will provide some respite. This should positively support the current home-buying sentiment,” he added.

Jaideep Arora, CEO, Sharekhan by BNP Paribas, said, “Contrary to expectations of 25 bps hike in policy rate, RBI has decided to take a pause in interest rate hikes this time around. However, it has kept the window open for any further action on interest rates depending upon the incoming economic data and any changes in the global macro scenario. Interestingly, the decision to not go for a rate hike is an unanimous decision by members of the Monetary Policy Committee (MPC). Also, for fiscal 2023-24 (FY2024), the projections for real GDP growth rate increased to 6.5% (up from 6.4% earlier and higher than the projections by World Bank and IMF) while the forecast for retail inflation is reduced to 5.2% as against 5.3% earlier. The overall commentary is also quite positive with expectations of a broad-based growth in the economy with financial stability reflected in the rising forex reserves and current account deficit under control. Markets are reacting positively to the policy with easing of bond yield and upsurge in the interest rate sensitive stocks. We remain positive on equity markets and expect interest rate sensitive sectors like real estate, auto, banks, financials along with engineering/capital goods to lead the rally in the near-to-medium term.”

What is repo rate?

Whenever commercial banks need loans, the central banks of nations lend them money at an interest rate that is referred to in common parlance as the repo rate. For example, if India’s central bank – the Reserve Bank of India – decides to lend money to the State Bank of India, then the interest rate levied will be called the repo rate.

In exchange, the bank receiving the loan will pledge securities such as government bonds or treasury bills as collateral to receive credit from the central bank. Normally, such loans are often short-term credits that banks avail when there is a shortage of funds.

During the COVID pandemic, the RBI reduced the repo rate to facilitate economic growth and mitigate the economic downturn which was a consequence of precautionary measures taken to halt the spread of the virus.

What ET Insight has to say

  • The RBI’s decision to halt the rate hike while recognising that the fight against inflation will continue is an encouraging step. 
  • The collapse of the US banking system, fears of a recession, and a rise in inflation are the leading causes of concern at the moment. 
  • The bond markets will consider a rate reversal while the equity markets continue to experience volatility.
  • The Governor’s statement that he will wait and observe hints at a possible neutral stance for the time being.

(With inputs from Aditya Krishnan, Lavanya Iyengar, Ashwani Mishra, and Tanmoy Mitra) 


Also Read – RBI Raises Repo Rate: Will it be enough to tame inflation levels?

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of ET Edge Insights, its management, or its members

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