Business Matters | What does RBI pausing on rates mean for the Indian economy? 

In this episode of Business Matters, we discuss why is the RBI so focused on inflation and what are the indicators encouraging for the rupee

The Reserve Bank last week decided not to act on the benchmark interest rate. It retained the rate at 6.5%. 

The last time this was raised was in the February 2023 policy meeting from 6.25%. The Monetary Policy Committee of the RBI meets once in two months.

For 2023-24, the RBI pointed out that domestic demand conditions remain supportive of growth on the back of improving household consumption and investment activity. Urban demand remains resilient, with indicators such as passenger vehicle sales, domestic air passenger traffic, and credit cards outstanding posting double-digit expansion on a year-on-year basis in April. Rural demand is also on a revival path – motorcycle and three-wheeler sales increased at a robust pace (y-o-y) in April, while tractor sales remained subdued. 

RBI has retained its estimate for economic growth at 6.5% for FY2023-24. Compared with the estimate released in April, it has raised the forecast for the first half a bit while toning it down for the second half. 

Bank of Australia raised the benchmark rate earlier this month and warned of more rate hikes citing persistent inflation. A Reuters report said that the bank removed references to “medium-term inflation expectations remain well anchored” which had been part of its statements since July last.

Why is the RBI so focused on inflation? What are the indicators encouraging for the rupee?

SCript and presentation: K. Bharat Kumar