India Monetary Policy April 2023

India: Reserve Bank of India unexpectedly leaves rates unchanged in April

On 6 April, the Reserve Bank of India (RBI) left the repo rate unchanged at 6.50%, catching market analysts off guard. It also left its standing deposit facility rate and marginal standing facility rate unchanged at 6.25% and 6.75%, respectively. All board members voted for the decision.

RBI governor Das said that the move was a “pause, not a pivot”. While inflation remained near the top of the RBI’s target in March, rising instability in the global banking sector likely prompted the RBI to adopt a wait-and-see approach.

The Bank did not provide explicit forward guidance. However, it stated it would continue to “remain focused on the withdrawal of accommodation” to assure that inflation returns to target “going forward”. That said, most of our panelists expect no further rate hikes this year.

The next monetary policy meeting is scheduled to take place on 6–8 June.

Analysts at Nomura commented on the outlook:

“We expect the policy pause to continue in June. Monetary policy works with long lags, so assessing the impact of the tightening will need more than two months’ worth of data. Developments on monsoons and food price inflation risks bear close monitoring […]. We retain our view that the policy pause will give way to a policy pivot towards rate cuts, starting this October. We expect 75bp in cumulative rate cuts in H2 FY24 (Oct 2023 – March 2024), which will lower the repo rate to 5.75% by March 2024.”

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