RBI pauses key repo rate hike, keeps it at 6.5%

The Reserve Bank of India on Thursday hit the pause button and decided to keep the key benchmark policy rate at 6.5 per cent even as inflation is trending above its tolerance level.

The rate hike has been paused after six consecutive rate increases aggregating to 250 basis points since May 2022.

Announcing the bi-monthly monetary policy, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) will not hesitate to take action in the future. 

While keeping the interest rate intact, Das said core inflation remains sticky. Core inflation generally refers to inflation in manufactured goods.

Retail inflation in February stood at 6.44 per cent compared to 6.52 per cent in the previous month. MPC takes into account retail inflation numbers for setting interest rates.

However, inflation is expected to moderate in the current fiscal.

Many institutions, including the World Bank and Asian Development Bank, have predicted that inflation would cool down to about 5 per cent this financial year.

The RBI also marginally revised upwards the economic growth projection for the current fiscal to 6.5 per cent, from its earlier estimate of 6.4 per cent. 

Das said the GDP growth in the first quarter of 2023-24 is expected at 7.8 per cent.

The growth for second, third and fourth quarter of the current fiscal has been projected at 6.2 per cent, 6.1 per cent and 5.9 per cent, respectively.

The World Bank in its latest 'India Development Update' (IDU) has slashed the Gross Domestic Product (GDP) forecast to 6.3 per cent, against the earlier estimate of 6.6 per cent in 2023-24.

Asian Development Bank also expects India's economic growth to moderate to 6.4 per cent due to tight monetary conditions and elevated oil prices, as compared to 6.8 per cent expansion for the financial year ended March 2023.