The central bank has kept the repo rate unchanged at 6.5%, indicating a pause after the hiking rate by 250 basis points since May 2022.
“Protracted geopolitical tensions and global financial market volatility pose a downside risk to the future outlook. The RBI is closely monitoring the turmoil in the banking sector in developed countries. The rupee has moved in an orderly manner in 2022 and continues to remain so in 2023,” RBI governor said.
Industry lauded the move to keep the policy rate unchanged.
Arun Kumar Garodia, Chairman of the Engineering Export Promotion Council of India (EEPC), said the Monetary Policy Committee’s decision to keep the policy repo rate unchanged at 6.50% was a welcome move. “The consistent hike in benchmark lending rates since May last year has already made borrowing costlier. The lagged impact of these hikes is expected to be visible in growth this year,” he said.
The RBI governor said the current financial year has indicated a softening in inflation, however the war against inflation would continue.
Garodia said the central bank was playing a supportive role. “Given the fact that the RBI is trying to settle business invoices in the Indian rupees, I believe the move will take Indian exports to a great height. It will cut down on dollar and the euro dominance and will also address the issue of shortage of hard currency in many geographies that Indian traders deal in. The rupee mechanism’s rollout has started and one will see its results within the next six months,” said the EEPC chairman.Reacting to the RBI governor’s take on the uncertain external environment, Garodia said the situation has settled a bit now with the Russia-Ukraine conflict disruptions softening noticeably. “Russia is a big market for us, and its factories are gradually coming to normalcy. The country is also exploring and developing alternative routes,” Garodia said.
The RBI’s decision to maintain the repo rate at 6.5% has come at a time when the US Federal Reserve last fortnight raised the rate by 25 basis points.
While most central banks have given more weightage to inflation than growth, the RBI has struck a nice balance between the two, said A Sakthivel, President, Federation of Indian Export Organisations (FIEO). This was a way to boost growth further, he said.
“Increasing investment will lead to further production and easing of supply, thus reducing inflation in the next couple of months. The status quo in rates will also help our exporters whose cost of credit has gone up substantially due to the upward revisions in rate in the past one and half years, leading to an increase in demand in interest subvention from 2% and 3% to 3% and 5%. Our goods and services exports will cross $770 billion in 2022-23, exhibiting a 15% growth, which is a huge achievement in the background of contraction in global trade starting from the second half of 2022,” Sakthivel said.
Echoing similar views, Saket Dalmia, President, PHD Chamber of Commerce and Industry, said that the calibrated steps undertaken by the RBI would encourage growth and consumption at the critical juncture of more global headwinds and slackening demand trajectory. While supporting measures to stimulate growth, the RBI’s MPC has decided to remain focused on withdrawal of accommodation. “This move is aimed at curbing inflationary pressures and ensuring financial stability in the economy. The GDP growth forecast at 7% for 2022-23 and 6.5% for 2023-24 are inspiring. We appreciate that the inflation trajectory at around 5.2% will help the economy to achieve its potential growth rate,” added Dalmia.