RBI likely to pause interest rate hike in April policy meet: SBI

The Reserve Bank of India (RBI) is expected to pause their interest rate hike and the current 6.5 per cent repo rate could be the terminal rate for now, said SBI Research in its latest Ecowrap report. The repo rate is the interest rate at which the RBI lends money to all commercial banks. The next monetary policy meeting is scheduled for the first week of April 2023. At the latest Monetary Policy Committee (MPC) of the RBI in early February, it decided to raise the repo rate by 25 basis points to 6.5 per cent to keep inflation expectations anchored, break the persistence of core inflation, and strengthen the medium-term growth prospects. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline. In early 2020 when Covid hit the world, the repo rate was 4 per cent. “The (RBI’s) stance could continue to be withdrawal of accommodation, even as liquidity is now in deficit mode. RBI can always keep the options open in June (monetary) policy,” the SBI Research, authored by Group Chief Economic Adviser State Bank of India Soumya Kanti Ghosh, said. The report asserted that the RBI has enough reasons to pause the repo rate hike in the April meeting. “There are concerns of a material slowdown in the affordable housing loan market and financial stability concerns taking centre stage. While concerns on sticky core inflation is justified, it may be noted that average core inflation is at 5.8 per cent over the last decade and it is almost unlikely that core inflation could decline materially to 5.5 per cent and below as post-pandemic shifts in expenditure on health and education and the sticky component of transport inflation with fuel prices staying at elevated levels will act as the constraint. By this logic, RBI may then have to go for more rounds of rate hikes,” it explained in the report. Notably, retail inflation in India fell marginally but remained above