The Reserve Bank of India on Thursday hit the pause button and decided to keep key benchmark policy rate at 6.5 per cent even as inflation is trending above its tolerance level.
The rate hike has been paused after six consecutive rate increases aggregating to 250 basis points since May 2022. Announcing the bi-monthly monetary policy, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) will not hesitate to take action in the future. While keeping the interest rate intact, Das said core inflation remains sticky. Core inflation generally refers to inflation in manufactured goods.
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Retail inflation in February stood at 6.44 per cent compared to 6.52 per cent in the previous month. MPC takes into account retail inflation numbers for setting the interest rates. However, inflation is expected to moderate in the current fiscal. Many institutions, including the World Bank and Asian Development Bank, have predicted that inflation would cool down to about 5 per cent this financial year. For the next fiscal, RBI projected a growth rate of 6.5 per cent as compared to 6.4 per cent estimated in February. In the latest Economic Survey of the finance ministry, growth was projected at 6-6.8 per cent for 2023-24.
Last month, the US Federal Reserve announced another 25 basis points interest rate hike to tame inflation. With the hike, the Fed has increased the federal funds rate from nearly zero in March 2022 to a range of 4.75-5 per cent. The European Central Bank and Bank of England have also hiked their benchmark rates.