India's central bank kept its key lending rate steady for a second straight policy meeting on Thursday, as widely expected, but signalled that monetary conditions will remain tight for some time as it looks to further curb inflationary pressures

The monetary policy committee (MPC), which has three members from the Reserve Bank of India and three external members, kept the repo rate steady at 6.50%.

All 64 economists in a Reuters poll taken between May 16 and 29 expected no change in rates.


COMMENTARY: KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU "The recent drop in y-o-y inflation is less about easing of prices and more about base effect. Domestic prices continue to remain elevated and there's no sign yet of actual prices coming off from their peak despite clear indication of inputs costs dropping."

"With rising corporate concentration translating into higher pricing power, they continue to focus on protecting their margins, preventing drop in prices. Thus, once the base effect wanes by October, y-o-y inflation may start picking up."

"In addition, with the El Nino effect lurking around the corner and the recent decision of Saudi to cut oil production, potentially pushing up crude prices, there is less certainty about the disinflationary trajectory."

"While we continue to believe that RBI may eventually decide to cut the policy rate during the fourth quarter, the uncertainty around the immediate trend is what is resulting in a more cautious data-driven central bank."

SACHCHIDANAND SHUKLA, GROUP CHIEF ECONOMIST, LARSEN & TOUBRO, MUMBAI "This has been one of the easier policy decisions for the RBI given the breather on the imported inflation front."

"The RBI will rightly remain watchful of inflation given the El Nino threat and rising crude prices, while trying to nurture the growth recovery given the volatile global backdrop."

MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL, MUMBAI "In this fast evolving world, it is unlikely the RBI would be too adventurous on either side of rate actions, and is unlikely to precede the Fed in reversing its course of rate hikes in the future."

VIVEK KUMAR, ECONOMIST, QUANTECO RESEARCH, MUMBAI "With the risk of El Nino potentially disrupting south-west monsoon performance, the likelihood of residual tightening by other major central banks, and need to focus back on aligning CPI inflation with its 4% target by FY25, we continue to expect a prolonged pause by the MPC." DEVENDRA KUMAR PANT, CHIEF ECONOMIST, INDIA RATINGS & RESEARCH, GURUGRAM "Factoring in global commodity prices, domestic and external demand, 6.5% GDP growth appears to be slightly optimistic. Retail inflation forecast of 5.1% is achievable in the absence of any global commodity price and monsoon shock during the year. We expect RBI to maintain the status quo in FY24."

DEEPAK AGRAWAL, CIO - FIXED INCOME, KOTAK MAHINDRA ASSET MANAGEMENT COMPANY, MUMBAI "Given that global central banks are still in hiking mode and future path of Fed funds rate is unclear, RBI did the right thing by keeping the monetary policy stance unchanged."

"By August 2023, RBI will have more clarity on the El Nino risk on inflation and the future path of Fed funds rate and can change the monetary policy stance."

SHISHIR BAIJAL, CHAIRMAN AND MANAGING DIRECTOR, KNIGHT FRANK INDIA, MUMBAI "Although inflation remains higher than the tolerance level, it has decreased over the last few months, allowing the RBI to maintain its stance. We believe that this status quo will facilitate positive decision-making for home buyers."

"Despite a significant increase in interest rates, the (real estate) sector has been performing well... However, we remain cautious about the industry, as the complete transmission of the repo rate hikes to lending rates is yet to be observed."

"The momentum in key macro-indicators related to growth is uneven. Indicators such as GST collection, manufacturing and services PMI, and E-way bills suggest strength in economic growth. However, certain crucial growth indicators, particularly consumer durable goods in the IIP (Index of Industrial Production), which reflects household consumption, have yet to show sustained recovery. Therefore, maintaining the policy rates unchanged for a while will support consumer demand amid diminishing inflation, thereby fostering economic growth."

SAUGATA BHATTACHARYA, EXECUTIVE VP AND CHIEF ECONOMIST, AXIS BANK, MUMBAI "While economic momentum remains resilient, there are significant risks. We expect MPC to remain on an extended pause. System liquidity is the one parameter which will need monitoring".

V K VIJAYAKUMAR, CHIEF INVESTMENT STRATEGIST, GEOJIT FINANCIAL SERVICES LTD, KERALA "Even though the MPC's rate decision and stance have come on expected lines as pause and withdrawal of accommodation respectively, the Governor's commentary can be interpreted as positive."

"The central bank's projection of FY24 CPI inflation has come at 5.1%, lower than 5.2% projected in the previous meeting. This indicates that the MPC has come to the end of this rate hiking cycle."

"If the monsoon is normal and the global scenario is favourable, the MPC may think about a rate cut by end CY2023 or early 2024. From the stock market perspective, this is positive."


PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI "RBI will be nimble in liquidity management, will ensure orderly completion of the government borrowing program this year. In our view, the MPC has strived to maintain its hawkish pause."

"We believe markets will hereon take their cues from their assessment of the durability of fall in headline inflation."

"We expect RBI to remain on pause through FY24 if external headwinds to India's growth don't manifest as feared."

SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM "The central bank could keep rates unchanged through the year with the chance of any rate cuts in FY24 seeming slim for now."

"We expect both growth and inflation to be lower than the RBI's estimates — growth at 6% and inflation to average at 4.8%-5% in FY24."

"The policy decision does little to move the needle in the bond market as it was broadly in line with expectations."

RADHIKA RAO, SENIOR ECONOMIST, DBS BANK, SINGAPORE "Along our expectations, the benchmark rate and stance were held unchanged, as the MPC prefers to stay on wait-and-watch mode to gauge the fallout of weather conditions on the price trend before considering a pivot to easing. This comes against the backdrop of the Australian weather bureau turning up the probability of an El Nino occurrence and action from the global central banks reflecting vigilance on inflation as well as financial stability risks."

"As the RBI maintained its strong GDP projections, these supportive recovery prospects also lower the urgency for a quick turn in the policy direction."

"A pause will allow for the lagged impact of past hikes to filter through to the real economy, with policymakers keen to keep real rates in positive territory. Liquidity swings will be met via need-based money market operations rather than durable tools."

SUJAN HAJRA, CHIEF ECONOMIST AND EXECUTIVE DIRECTOR, ANAND RATHI SHARES AND STOCK BROKERS, MUMBAI "In the wake of a greater-than-anticipated decline in inflation in the recent past, it was anticipated that the monetary policy would shift from a liquidity withdrawal to a neutral stance. However, the MPC has decided to maintain the current stance by a majority vote. This is due to the fact that the demonetisation of Rs. 2,000 banknotes has significantly contributed to the recent increase in liquidity."

"RBI's projections indicate that its inflation target of 4% will be exceeded each month of the current fiscal year. While the continuation of the RBI's policy stance is somewhat disappointing, the central bank's cautious approach in light of upside risks, such as the potential impact of El Nino on India's monsoon and the continuation of monetary tightening by the world's major central banks, appears justified and well-articulated."

"Therefore, we anticipate that the monetary policy announcement will have no effect on the financial markets."

SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI "RBI staying on a pause and maintaining its stance was in line with expectations. The RBI remains cautious on the inflation trajectory especially as inflation will remain above the 4% target for the foreseeable future."

"The RBI continues to estimate average inflation slightly above 5% for FY2024 while GDP growth has been retained at 6.5% though we believe there are some downside risks to growth. We believe that rate cuts will be contingent on significant divergence in growth-inflation prospects. We maintain our call that the RBI will be on an extended pause."

GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI "Encouraged by the recent softening of retail inflation as well as easing global inflationary impulses, in line with our expectations, MPC decided to maintain pause and retain stance of withdrawal of accommodation".

"Healthy domestic growth impulses and receding inflationary risks in recent months amid strengthening of external sector dynamics are encouraging. We see MPC remaining on a prolonged pause in CY23 and see room for MPC to cut policy rate by 25 bps in Q4FY24, led by softening inflationary impulses." (Reporting by Anuran Sadhu, Nandan Mandayam, Bharath Rajeswaran, Manoj Kumar, Meenakshi Maidas, Navamya Ganesh Acharya, Ashish Chandra, Nishit Navin and Rama Venkat; Editing by Sonia Cheema and Eileen Soreng)