RBI holds interest rates, governor Shaktikanta Das surprises markets with a sudden pause

MUMBAI: In an unexpected move the Reserve Bank of India’s decided to hold its key interest rate and did not go in for a 25 basis points increase as expected by most economists and analysts.

Announcing the unanimous decision of the six-member committee on Thursday, RBI governor Shaktikanta Das said that the MPC decided to wait for the impact of the earlier rate hikes to play through the economy.

Five of the six-member rate-setting committee voted in favour of continuing to withdraw liquidity from the money markets as inflation continued to remain high. This is the first pause since the RBI began its current rate hiking cycle which began in May 2022.

RBI’s rate hike is contrary to the decisions of the US Federal Open Markets Committee and the Bank of England both of which raised interest rates recently but in line with the Reserve Bank of Australia which voted for a pause. While some economists had said that RBI may choose to pause and wait for the impact of earlier rate actions, the majority view was that RBI would increase rates in view of the firming crude oil prices.

Announcing the MPC’s decision, Das said that while 2023 started on a positive note, the narrative changed within weeks with the banking crisis in the US. He described as unprecedented the uncertainty in geopolitics and financial markets.

Das also pointed out to the introduction of the Standing Deposit Facility last year, which effectively raised RBI’s borrowing rate from banks by 40 basis points, as part of the rate hike.

Das said that considering the standing deposit facility, the total rate hikes since May 2022 worked out to 290 basis points.