RBI holds one meeting at a time

That said, another surprise in the policy has been the unanimity in the rate decision, with all six Monetary Policy Committee (MPC) members voting for a pause. This compares with four members supporting the hike at the February meeting.

But it is worth noting that despite the status quo on rates, the RBI’s focus remains on combating inflation. In its statement, the central bank acknowledged that inflation remains above the target. Furthermore, it stated that the deflation process would be “gradual and prolonged”. It has maintained a “return to accommodation” stance. The governor’s comments such as “the RBI’s job is not over yet,” underscored the central bank’s inflationary focus.

Why not? Even though the RBI has frozen rates, inflation remains at and above the upper tolerance band of the central bank’s 2-6% target. RBI’s projections put average FY24 inflation measured through the consumer price index at 5.2% year-on-year (yoy), down from 5.3% expected in February. However, it is still close to the upper end of the RBI’s comfort zone. To be sure, ensuring a stable and sustained deflation process is a tall order, given the upside risks to inflation.

Factors such as record rabi harvest and fall in global commodity prices provide some comfort but heat waves, recent unseasonal rains and seasonal factors may limit a meaningful decline in food inflation. The possibility of El Niño in 2023 is a risk. Moreover, even though the RBI has reduced the price of Indian crude oil basket to $85 per barrel in FY24 from $95 last year, the outlook remains uncertain and its impact on fuel inflation is inevitable.

The other key risk emanates from the sticky core inflation trajectory, which has hardly shown signs of moderation despite a cumulative 250 basis points increase since May. Finally, increased global financial market volatility and the resulting impact on commodity prices and currencies remains to be seen. This may have an impact on imported inflation.

The RBI governor has reiterated in multiple ways that the status quo is only for the April meeting and markets should take note. With increased global uncertainty, the central bank has focused on current dynamics. “We believe the fear of “momentum hitting” has led to a positive stance from many central banks, both in developed markets and emerging markets, amid growing concerns over the transmission of policy tightening to growth and the RBI doing the same.” feedback function,” said Madhavi Arora, principal economist at Emkay Global Financial Services. According to Arora, the RBI has given a non-committal pause, but a pause for good.

All said, in an era where global monetary policies are in sync and major central banks including the US Federal Reserve are still tightening rates, the RBI will not want to stand aside and act as a lone warrior unless Don’t feel shocked. Meanwhile, domestic growth has been resilient so far and RBI’s FY24 GDP projection at 6.5% YoY makes India a bright spot in a slow growth world. The central bank is on wait-and-watch mode and it is best that the markets do the same.