*
RBI holds repo rate at 6.50%
*
Analysts had expected one more hike of 25 bps
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RBI sees "war against inflation" continuing
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Bond yields fall sharply; rupee down slightly
(Adds governor comments from media conference, analyst views)
By Swati Bhat and Sudipto Ganguly
MUMBAI, April 6 (Reuters) - The Reserve Bank of India
(RBI) surprised markets by holding its key repo rate steady on
Thursday after six consecutive hikes, saying it was closely
monitoring the impact of recent global financial turbulence on
the economy.
The central bank said its policy stance remains focused on
"withdrawal of accommodation", signalling it could consider
further rate hikes if necessary, but a number of economists now
expect the central bank to remain on hold.
"It is a pause, not a pivot," RBI Governor Shaktikanta Das
said at a media conference after the monetary policy
announcement.
The monetary policy committee (MPC), comprising three
members from the central bank and three external members,
retained the key lending rate or the repo rate at
6.50%.
Most analysts had expected one final 25 basis point hike in
the RBI's current tightening cycle, which has seen it raise the
repo rate by a total 250 bps since May last year.
"We expect the RBI to maintain an extended pause and
evaluate the lagged impact of previous rate hikes and global
uncertainties on growth-inflation dynamics," said Upasna
Bhardwaj, chief economist at Kotak Mahindra Bank.
Some other central banks, including in Canada, Australia and
Indonesia, have similarly paused, while the U.S. Federal
Reserve, Bank of England and the European Central Bank have
indicated they may pause, to assess the impact of past hikes and
banking sector turmoil on growth and inflation.
"We have to be extremely prudent in our actions," Das said in
his statement.
While the central bank has taken the decision to pause rate
hikes in light of global macroeconomic and financial conditions,
"our job is not yet finished and the war against inflation has
to continue", Das said, reiterating the resolve to bring
inflation back within the central bank's target band of 2%-6%.
Retail inflation rose 6.44% year-on-year in February,
easing from 6.52% in January but has remained above the central
bank's mandated target range for 10 out of the last 12 readings.
The central bank sees inflation at 5.2% in 2023-24, and GDP
growth is seen at 6.5% in the financial year beginning April 1.
"With unyielding core inflation, we remain firm and resolute in our pursuit of price stability which is the best guarantee for sustainable growth," said the committee in its statement. "The impact of our actions over the past 12 months is still playing out and would increasingly weigh on the future inflation trajectory." It is necessary to assess the cumulative impact of actions taken so far, said Das. Early signs of a slowdown have been visible in bank credit growth which has slowed to 15.7% on-year as of March 10, easing from a decade high of 17.9% touched in October.
Financial stability concerns appear to have prompted the
pause in rate hikes, said Aditi Nayar, chief economist at rating
agency ICRA, adding that another hike was possible if inflation
does not fall.
The decision to hold interest rates steady was unanimous in
contrast to the last decision when four members had voted for a
hike in rates.
Five of the six committee voted in favour of continuing with
the stance of "withdrawal of accommodation", while one member
dissented.
"Retaining the stance at removal-of-accommodation also
signals a continued focus on steadily guiding inflation down
towards the 4% target," said Saugata Bhattacharya, chief
economist at Axis Bank.
The hiking cycle could resume if the data warrants it, said
Shilan Shah, deputy chief emerging markets economist at Capital
Economics. "But given the subdued growth outlook and the
likelihood that inflation falls back to within the RBI’s target
range before long, our view is that the tightening cycle is at
an end."
Barclays does not expect any further rate hikes in the
cycle. "We think only a material upside surprise keeping CPI
inflation above 6% for a long period would warrant another rate
action by the MPC," said Rahul Bajoria, chief India economist at
Barclays.
Government bond yields fell sharply after the surprise RBI
decision. The 10-year benchmark 7.26% 2032 bond yield dropped to 7.1469%, the lowest level since Sept.
15 immediately after the policy announcement, against 7.2857%
before the decision. The yield was at 7.21% as of 1.20 p.m. IST
(0750 GMT).
The Indian rupee declined marginally against the U.S.
dollar. The rupee was at 81.98 to the dollar against
81.88 prior to the policy announcement.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ India's central bank keeps rate unchanged indiampc_apr2023 India's sticky core inflation ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Swati Bhat and Sudipto Ganguly; Writing by Ira Dugal; Editing by Sonali Paul)
+91-22-69217812; Reuters Messaging: swati.bhat.thomsonreuters.com@reuters.net))