RBI Policy Balanced And Nuanced, Will Push Growth, Say Experts

The Reserve Bank of India's monetary policy decision on interest rates is balanced and nuanced and reflects its optimism on economic prospects in the current fiscal year, experts say.

RBI, which had been increasing interest rates in all its monetary policies since May, pressed the pause button on Thursday, belying expectations of one more hike in the repo rate in view of inflation and the global economic scenario.

The benchmark short-term lending rate (repo) has increased by 250 basis points since May 2022 to touch 6.5%.

The policy has its share of surprises with a unanimous decision to keep the repo rate unchanged, said chief economist of Bank of Baroda Madan Sabnavis, and added that this goes along with a tint of optimism compared with its outlook in the February policy.

"On the whole, a very balanced and nuanced view has been taken, which ensures stability in this status quo situation while not committing to the future path that will be data-driven," he said.

While announcing the monetary policy, RBI Governor Shaktikanta Das noted that the global economy is now confronted with serious financial stability challenges from the recent banking sector developments in some advanced economies.

Dhruv Agarwala, group CEO of Housing.com, said the RBI's decision is a major relief for the real estate industry in general and homebuyers in particular.

"If RBI had gone for another rate hike, lending rates would have reached a record high level that may have impacted the positive buyer sentiment the housing sector has witnessed in the past year," he said.

President of the Commodity Participants Association of India, Narinder Wadhwa, expects an extended pause and feels the interest cycle is done. Markets cheer this decision of the RBI, said Wadhwa.

The Executive Chairman of Andromeda Loans said the RBI's choice to keep policy rates unchanged will offer relief to borrowers.

"We are optimistic that this decision will contribute to stabilising the economy and curbing inflation in the long run, leading to improved overall financial health for the country," he said.

Rohit Arora, CEO and Co-founder of Biz2Credit, said since the economic uncertainty has increased and there are chances of a U.S. recession after the crisis in mid-size banks in the U.S., the RBI is playing it safe by not increasing the repo rate, which would have increased the cost of money as well as lowered the GDP growth rate.

"RBI has still kept the option open for a mid-cycle rate hike," he added.

Parijat Agrawal, Head-Fixed Income, Union Asset Management Company, said it is a well-timed decision to pause on evolving global and domestic macroeconomic and geopolitical scenarios.

"Expecting an extended pause from MPC on the back of resilient growth and inflation trending downwards," Agrawal added.

Ranen Banerjee, Partner, Economic Advisory Services, PwC India, opined inflation is likely to soften owing to the base effect kicking in and further moderation in commodity prices following weak economic data from the U.S.

"We should expect a long pause on the repo rate going forward for at least three to four quarters, and the RBI will utilise other monetary policy tools in its arsenal towards managing any short-term challenges," he said.

Addressing a press conference, the RBI Governor made it clear that the decision to hold rates should be seen as a pause, and not a pivot.

Prabhat Chaturvedi, CEO of Netafim Agricultural Financing Agency, said the central bank is focusing on giving impetus to fiscal growth while ensuring that India’s financial system is not exposed to extraordinary shocks.

The unchanged repo rate will provide more elbow room to the lenders to increase the credit flow, he added.

The RBI will release the minutes of the Monetary Policy Committee meeting on April 20.

The next meeting of the MPC is scheduled for June 6–8, 2023.