RBI’s interest rate cycle: Also in the form of RBI MPC With the decision to halt rate hikes and go for status quo on the key repo rate on Thursday, people are wondering if this is the end of the current interest rate hike cycle in India. Markets were expecting another rate hike by the RBI on Thursday before holding off on rate hikes in the future. Here’s what experts say about it:
What is a rate hike cycle?
A rate hike cycle is a period during which the RBI continuously increases the interest rates in the country. This is done to prevent inflation. On the other hand, in a rate cut cycle, the RBI keeps on cutting interest rates from time to time to pump liquidity into the system to boost economic growth.
Current and past rate cycles: hike, cut, status quo
In the current rate hike cycle, the RBI begins raising the repo rate from May 2022. Since then, the monetary policy committee of the central bank has raised the repo rate by 250 basis points (bps) to 6.50 per cent. Repo rate is the rate at which RBI lends money to commercial banks. One basis point is equal to one hundredth of a percentage point.
The last repo rate hike cycle was recorded between April 2009 and January 2014, during which the repo rate was raised from 4.75 per cent to 8 per cent. Thereafter, the period between January 2015 and May 2020 saw successive rate cuts (rate cut cycle), during which the repo was reduced from 8 per cent to 4 per cent in about five years.
However, the period between May 2020 and May 2022 saw a status quo in the repo rate at 4 per cent. After May 2022, RBI starts the current rate hike cycle.
What do experts say?
Explaining the possibility of further rate hikes, Aditi Nair, Chief Economist and Head (Research & Outreach), ICRA Ltd., said, “If inflation does not meet the MPC’s assessment for Q1 FY2024, there could be another hike.” Offensive, especially if financial stability conditions freeze.”
He added that financial stability concerns seem to have already put a halt as the MPC assesses the impact of its cumulative 250 bps of rate hikes.
Vivek Iyer, partner and leader (financial services risk) at Grant Thornton India, said, “There will be two more hikes of 25 basis points, which RBI has in its armoury, but RBI wants to use it judiciously considering that How the inflation numbers have ended up.”
Echoing similar views, RBL Bank economist Achala Jethmalani said that based on current growth-inflation dynamics and the global backdrop, the repo rate is likely to peak at 6.50-6.75 per cent, with an eventual 25 bps1 H is likely to be distributed. FY24.
Giving a balanced view, Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities said, “RBI remains comfortable on the growth front for now. We believe the risks to this approach are skewed to the downside. We expect the RBI MPC to be on an extended pause. Given our growth-inflation outlook and the impact of previous rate hikes, the scope for further increases is limited.”
What did RBI Governor Shaktikanta Das say in this regard
announcing the status quo on Thursday RBI Governor Shaktikanta Das Said that the Monetary Policy Committee will not hesitate to take any action in future.
The RBI MPC on Thursday unanimously decided to keep the repo rate unchanged at 6.50 per cent. The RBI MPC also voted with a 5:6 majority to remain focused on ‘withdrawing the adjustment’.
The reverse repo rate and CRR also remained unchanged at 3.35 per cent and 4.5 per cent, respectively. RBI also kept SDF unchanged at 6.25 per cent and MSF and Bank Rates at 6.75 per cent.
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