RBI MPC meet in October 2023: RBI keeps repo rate unchanged at 6.50% fourth time in a row

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Friday (October 6) said the repo rate will be unchanged at 6.5 per cent. This is the fourth time that the central bank has kept the basic rate unchanged. Governor Shaktikanta Das said the all members of the MPC – Dr Shashanka Bhide, Dr Ashima Goyal, Prof. Jayanth R. Varma, Dr Rajiv Ranjan, Dr Michael Debabrata Patra and Shaktikanta Das – unanimously voted to keep the policy repo rate unchanged at 6.50 per cent. voted unanimously to keep the repo rate at the same level. The repo rate was last hiked in February 2023 by 25 basis points (bps).

RBI Governor said the six-member rate-setting panel has left the policy stance unchanged with focus on withdrawal of accommodation.

Standing Deposit Facility and Marginal Standing Facility rates also left unchanged at 6.25 percent and 6.75 percent, respectively

"MPC will remain watchful of inflation and remains resolute to its commitment to align inflation to the targeted level," he added.

Transmission of 250 basis points increase in repo rate is still incomplete, Das added.

The MPC has been closely watching the economic development, choosing to observe and assess the consequences of the cumulative 250 bps hike since May 2022 before making any substantial decisions.

At the MPC meeting in April, the RBI paused its rate hike cycle and stayed with the 6.5 per cent repo rate, and kept it as is in June. Prior to that, the central bank had cumulatively hiked the repo rate by 250 basis points since May 2022 in a bid to contain inflation.

“The RBI’s decision to pause along with retaining the withdrawal of accommodation stance was in line with expectations. Importantly, the RBI has explicitly highlighted the need to use OMO sales to modulate liquidity. This will weigh down bond markets’ sentiments. Concerns on food inflation were highlighted which can impart upside to headline inflation. We believe that inflation risks remain on the upside given weather related impact as well as commodity prices. Global monetary conditions will also weigh on RBI’s policy decisions. The good part is that growth remains resilient and core inflation remains under check. We maintain our call for a prolonged pause on repo rate at 6.5% well into FY2025 while liquidity over the medium term will be aimed at being close to neutral,” said Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities.

"On a positive note, interest rates haven't increased as anticipated, however they are expected to remain elevated for an extended period. This will have an implication on rate-sensitive sectors like banking, auto, core industries, and heavy-weighted balance sheet companies. The elevated global bond yields and appreciation of the US dollar will affect the domestic economy and capital flows. However, it should not have a deep overhang effect on the economy but rather a mixed bias in the short term. The inclusion of government securities in the global bond index and moderation in inflation, like food & international commodity prices, will support INR and domestic corporate profit even in a volatile global currency market," said Vinod Nair, Head of Research at Geojit Financial Services.

"Status quo on the policy rates was very much in line with street expectations. The central bank has kept the benchmark repo rate unchanged at 6.5%. Volatile crude and below par Kharif sowing has kept everyone guessing about the inflation trajectory. However green shoots should be visible with softening core inflation and favourable seasonal factors. This explains somewhat the reason for little change in Inflation estimates. With no surprises at play, this policy should be a non-event for the markets. Rather the way forward for Equities would be guided by the upcoming Quarterly results season," said Kaushik Dani, fund manager – PMS, Abans Investment Managers.

“In line with our expectations, the MPC maintained a status-quo on policy rates and stance. We view it as a ‘hawkish hold’ on policy rates as the focus remains on bringing inflation down to the 4.0% target. The RBI’s comments on existing banking system liquidity is indicative of tighter system liquidity conditions continuing as it stands ready to deploy all its tools to absorb excess system liquidity. Brace for a long pause on the Repo Rate with tighter liquidity conditions. This is expected to complete the policy transmission in this hiking cycle with the objective of keeping borrowing costs high. The resilience in economic growth despite the restrictive financial conditions underpin the RBI’s move to tighten the liquidity conditions,” said Achala Jethmalani, Economist at RBL Bank.

Also read: RBI MPC LIVE updates: RBI maintains status quo; retains FY24 GDP growth forecast to 6.5%; inflation outlook at 5.4%