RBI signals long pause

REPO RATE, TIGHTENING STANCE UNCHANGED. FY24 INFLATION FORECAST TRIMMED, GDP'S RETAINED

-  PIYUSH SHUKLA

THE MONETARY POLICY Committee (MPC) of the Reserve Bank of India kept the benchmark repo rate unchanged at 6.50% and retained its tightening stance, signalling a longer timeframe for rate cuts. While the rate pause decision was unanimous, the decision to retain the stance as "withdrawal of accommodation" had one dissenting voice that of external member Jayant Varma in the six-member MPC.

"It is a pause in this meeting of the MPC and I have not said anything about the pivot. Whatever I said in the last meeting that it is not a (policy) pivot - I reiterate that," governor Shaktikanta Das told reporters after the monetary policy announcement.

"Our goal is to achieve the inflation target of 4% and keeping inflation within the comfort band of 26% is not enough," Das said."Inflation should align with 4% target on a durable basis, not a one-off basis," he said after trimming the RBI's inflation forecast to 5.1% from 5.2%. "It is always the last leg of the journey which is the toughest," he added.

Analysts, however, do not expect inflation to fall to the RBI's 4% medium-term target in a sustainable manner for some time. Abheek Barua, chief economist at HDFC Bank, said "any rate cut expectations in 2023 that were being built up in the market are likely to be pushed forward for now". He added the RBI seems to be building in a buffer for any food prices spikes due to weather-related disturbances during the monsoon season. If indeed these risks do not pan out, inflation could be lower than the RBI's projections leading to subsequent communications becoming more dovish.