The Reserve Bank of India’s Monetary Policy Committee headed by Shaktikanta Das on Friday decided to keep the policy rate unchanged at 6.5 per cent for the fifth time in a row. The MPC maintained the policy stance of ‘withdrawal of accommodation’ by a majority of 5 out of 6 members. The rate increase cycle was paused in April after six consecutive rate hikes, aggregating to 250 basis points since May 2022. 

“The Reserve Bank of India’s Monetary Policy Committee after a detailed assessment of the evolving macroeconomic developments, has decided unanimously to keep the repo rate unchanged at 6.5 per cent,” said RBI Governor Shaktikanta Das amid India’s better-than-expected economic growth.

As inflation remains above RBI’s target of 4 per cent and the global economic environment remains fragile even as India’s growth has been remarkable, the RBI wants to stay ready to act when required, the RBI Governor said. 

According to Das, the growth projection has been raised to 7 per cent for FY24 from 6.5 per cent earlier. The RBI projected the CPI based retail inflation at 5.4 per cent for the current fiscal. The inflation had declined to 4.87 per cent in October and the November print of inflation is expected to be released next week. The government has mandated the RBI to keep CPI inflation at 4 per cent with a margin of 2 per cent on either side.

The October CPI came at a four-month low of 4.87 per cent against 5.02 per cent the previous month. Retail inflation in India is in the RBI’s 2-6 per cent comfort level. 

On the GDP front, the Indian economy grew 7.6 per cent during the July-September quarter of the current financial year 2023-24, remaining the fastest growing major economy. India’s GDP growth for the April-June quarter grew 7.8 per cent. RBI Governor Shaktikanta Das said that FY24 real GDP growth is projected at 7 per cent. Real GDP growth for the next year is projected at 6.7 per cent in Q1, 6.5 per cent in Q2 and 6.4 per cent in Q3.

The three-day bi-monthly monetary policy committee (MPC) meeting of the RBI began on Wednesday. For the fourth straight occasion in October, the MPC had unanimously decided to keep the policy repo rate unchanged at 6.5 per cent, thus maintaining the status quo. The RBI had raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022. 

Here is what economists said on the decision by the RBI MPC:

Nilesh Shah, MD, Kotak Mahindra AMC

From being a part of fragile 5 some time back to having GDP growth revised upwards to 7 per cent when global growth has become fragile is the summary of the good work done by the RBI and the government in the most challenging times.

The RBI policy is continuity of the good work done in the past. Inflation within target range, yet the vigil is on. Growth revised upwards. Financial system is healthy and pushed to stay ahead of the curve on digitisation. Truly reminding of Glen Maxwell Inning against Afghanistan in the world cup.

Sanjay Agarwal, Founder, MD & CEO, AU Small Finance Bank 

The decision of status quo on Policy Rates and stance by MPC is as per our expectations and a welcome move. MPCs emphasis on keeping Inflation target at 4 per cent in the long run demonstrates RBI’s commitment to support sustainable growth while maintaining financial stability. Despite global headwinds, RBI has raised GDP forecast to 7 per cent from 6.5 per cent for FY24 demonstrating confidence in domestic growth levers. RBI would continue to remain watchful and ready to act on evolving domestic and global developments as warranted.

Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE 

A sustained GDP growth forecast and a manageable inflation has helped RBI to maintain the status quo on the key policy rates. The pause on the interest rate is expected to push sentiments further for home buyers, and this continued pause in rates is likely to boost the real estate sector significantly. Expected inflation within the comfortable range will further rekindle the hope of a declining rates regime.

Manoranjan Sharma, Chief Economist, Infomerics Ratings

As repeatedly stressed by us both in the print and electronic media, e.g., on October 10, October 11, December 5, December 6 and 7, 2023, the RBI kept the benchmark Policy rates unchanged and also retained the stance of the Policy as “the withdrawal of accommodation” on the basis of a comprehensive assessment of the global and domestic environment. This Policy is entirely in conformity with our pre-policy expectations. In view of the evolving growth-inflation trade-off, the MPC took the right call in holding the rates steady.

Shivaji Thapliyal, Head of Research and Lead Analyst, Yes Securities

On UPI transaction limits: The RBI, once again, continues to take incremental steps to enhance the ubiquity of the UPI as a platform for retail digital payments. Large value retail digital transactions have generally been in the domain of credit cards and hence, it remains to be seen to what extent allowance of higher UPI payments to hospitals and educational institutions would shift transaction value away from credit cards. Some of the key segments where large value retail digital transactions have generally taken place are travel bookings, including hotel and flight tickets and larger retail transactions, both in e-commerce and offline retail.

Web aggregation for loan products: The RBI remains clued in about the goings on in the fintech space and will not allow this space to run unregulated. The goal is to safeguard the interest of the customer. However, a concomitant outcome of this is that web aggregators may not be allowed to increasingly control the digital lending ecosystem in a surreptitious manner.”

Fintech repository/Framework for connected lending: Connected lending pertains to lending to related parties within the same business group. While on the one hand, the RBI might be seeming to be somewhat more agreeable to allowing business conglomerates to own banking licenses, it also feels it is important to, simultaneously, bolster regulations that would disallow conglomerate-owned banks from gaming the system.

Hedging of foreign exchange derivatives: The RBI would be conscious of how foreign exchange exposures, especially loan exposures, are unhelpful for banks in times of financial crises, given the INR tends to depreciate over time against foreign currencies. Hence, steps taken to deepen the forex derivative market would, on balance, create a safer environment for banks in this regard.

Lakshmi Iyer, CEO-Investments & Strategy, Kotak Alternate Asset Managers Limited 

The policy status quo was in line with expectations. The upward revision in GDP growth estimates would mean continued momentum in equities as well as interest rate sensitives. RBI has not sounded as hawkish as markets expected, hence bond yields may ease a tad. However given India’s CPI data and impending US FOMC decision, upside in prices may be limited. Rates seem to have peaked out and hence rise in yields could be an opportune time to add duration to one’s portfolio.

Niraj Kumar, Chief Investment Officer, Future Generali India Life Insurance Company Ltd

MPC has delivered a ‘Neutral Policy with a positive undertone ‘and has been more upbeat on growth by nudging the forecasts higher, while yet being cognizant and cautious on achieving their medium-term inflation target. The upgrade in GDP growth rate to 7%, while maintaining inflation forecast renders key optimism in the policy and provides the requisite comfort to markets. Overall, MPC has explicitly signalled that the overarching approach continues to be that of policy stability and would eliminate any suddenness and surprises by being nimble amidst the dynamic global and domestic landscape.