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ICICI Direct Report
The Reserve Bank of India Monetary Policy Committee has decided to pause for this meeting and maintained the repo rate at 6.5%. The MPC continued to remain focused on 'withdrawal of accommodation' to ensure that inflation progressively aligns with the target, while supporting growth.
RBI emphasised that the decision to pause on the repo rate is for this meeting only.
The effective rate hike since April last year has been 290 basis points. These increases have been fully transmitted to the overnight weighted average call money rate, the operating target of monetary policy, which has gone up from daily average of 3.32% in March 2022 to 6.52% in March 2023.
As stated by the RBI, it is now necessary to evaluate the cumulative impact of these rate hikes. Accordingly, a pause currently with options open to act as and when necessary bodes well for markets o When the rate cut cycle started in February 2019 to provide support to growth, Consumer price index inflation was around 2% and the policy repo rate was 6.50%.
Now, the policy rate is 6.50% but inflation is 6.4% (February 2023). Overall, inflation is above the target and given its current level, the present policy rate can still be regarded as accommodative.
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