In a surprise to the market, the RBI in the first policy meeting for FY24 decided to keep the policy rate, the repo rate, unchanged at 6.50% with the readiness to act, should the situation so warrant. Furthermore, the stance was kept unchanged as “focusing on withdrawal of accommodation”, providing the RBI with the policy space for future meetings. The decision to pause was likely driven by the downside risks posed to economic growth from concerns over financial stability and the central bank’s expectation of a moderation in inflation over the next couple of months. We assess the tone of the policy as still cautiously hawkish and can see the central bank going for an extended pause in FY24 unless the inflation dramatically surprises on the upside.
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