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Thursday, October 31, 2024

As RBI Hits Pause, We May See Last Of The Rate Hike Cycle

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New Delhi
As the six wise people comprising the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) met and decided to hold interest rates, the market was surprised. Positively, prior to the policy review, the majority of the market was pencilling in a policy interest rate hike of 25 basis points. The major reason for the market expectation was that for two consecutive months, January and February 2023, inflation was higher than 6 percent, the upper tolerance band. Then why the pause, and what did the RBI say? Since the start of the current rate hike cycle, that is, since 4 May 2022, the signal repo rate has been hiked by 2.5 percentage points. The effective rate hike has been even higher. The lower end of the RBI rate corridor was reverse repo earlier, now changed to Standing Deposit Facility. Earlier there was a hike of 40 basis points during the changeover. Hence, overall, the rate hike has been 2.90 percentage points. Today, the RBI MPC paused on rate action, only for this meeting, to assess the impact of the 2.9 percentage points rate hike effected already. The RBI governor Shaktikanta Das clarified that the central bank remains watchful and if required if inflation is on the higher side they will hike again.

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