RBI MONETARY POLICY - PAUSE NOT PIVOT

Friday, April 07 2023

The RBI was widely expected to raise its benchmark rate for the seventh consecutive meeting by 25 basis points (bps) to a seven-year high of 6.75 per cent on April 6, 2023 with the distinct possibility of more hikes to contain inflation within its comfort zone. Almost all central banks hiked rates since April 2022 with the cumulative hikes being US 450 bps, Hong Kong 450 bps, Canada 400 bps, UK 350 bps, and Australia 350 bps.

The series of rate hikes began with 40 bps hike from 4 per cent at an off-cycle meeting in May 2022, its first rate increase in nearly four years and, therefore, “it is now necessary to evaluate cumulative effect of rate hikes”. Early signs of a slowdown have been visible in bank credit growth which decelerated to 15.7 per cent on-year as of March 10, easing from a decade high of 17.9 per cent in October 2022.

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