RBI Governor Shaktikanta Das on Thursday said “it’s a pause and not a pivot” about the Reserve Bank of India’s surprise decision to hold the key policy rate at 6.50 per cent after hiking the rate six times since May last year.
Cumulatively since last May, Reserve Bank of India (RBI) has increased the interest rate by 250 basis points to tackle inflation and the Monetary Policy Committee’s decision on Thursday to leave the repo rate unchanged came as a surprise.
RBI Deputy Governor Michael Patra, who heads the monetary policy department at the central bank, said, “this pause is valid till 10 am on June 8, 2023 when the Governor will announce the next policy review”. While leaving the key rate unchanged, MPC members were unanimous in their view that it is time they reviewed the outcome of the past six consecutive rate hikes since May last year.
“If I have to characterise today’s monetary policy in just one line, it would be it’s a pause and not a pivot,” Das told reporters at the customary post-policy presser.
The surprise move also comes against the backdrop of inflation still remaining high amid rising external risks, including concerns over the health of the global financial system.
“We’ve said that MPC stands ready to act should the situation so warrant in the future meetings. So, I think banks and anybody else can draw their own inferences but I think, it will be desirable that they sort of take our word seriously. And I think they do take our words seriously and act accordingly in pricing their future actions,” Das said.
According to him, there has been an effective rate increase of 290 basis points since May last, including the 40 bps increase in the SDF (Standing Deposit Facility).
He said these hikes have translated to a monetary policy transmission by way of the increase in the overnight call rates, which have soared by 320 bps between March 2022 and March 2023.