Quick view | Dear RBI governor, why the reluctant pause now?

RBI Governor Shaktikanta Das said the move to pause shouldn't be seen as a pivot.

The surprise rate pause announced by RBI Governor Shaktikanta Das on April 6 doesn't really go with the super-cautious stance of the majority of the monetary policy committee (MPC) members on persistently high inflation in recent meetings.

Till the last policy, the cue to the market was that till the time inflation eases into the central bank’s comfort zone —below 6 percent— it will be too early and premature to lower guard.

"It would be premature to pause, lest we are caught off-guard and need to do a catching up later,” Das was quoted as saying in the February MPC policy minutes.  So, what changed on the inflation front?

Inflation continues to be on the higher side and there are fresh concerns, both on global and domestic fronts. There are no immediate reasons to imagine that inflationary fears are over.

The retail-price-based inflation has, so far, remained in the red zone — 6.44 percent in February and 6.52 percent in January. The core inflation, which is the non-food and non-oil part of the inflation, too, has stubbornly stayed above 6 percent for consecutive months. That is the reason few economists expected a rate pause. The majority predicted a 25 basis points (bps) rate hike in the backdrop of MPC’s heightened concerns surrounding sticky retail inflation.

In the wake of these numbers, today's rate pause is a bit confusing.

Why the reluctant rate pause now? One can only speculate. But probably, the central bank wanted to assess how the global situation evolves, particularly with respect to the banking crisis and emerging recessionary fears, and also wanted to see how the earlier rate cuts are playing out.

Another big factor is that the government clearly wants the MPC to move to a growth-supportive stance to help economic recovery.

But even when Das announced the pause, there were words of abundant caution as far as the fight against inflation goes. The RBI governor said the MPC would not hesitate to take action in future policy meetings. Das was at pains to make it clear that the decision to hold the key repo rate was a one-off and that the central bank would act should the situation warrant. The MPC would not hesitate to take actions in the future policy meetings, Das added.

Overall, the tone suggests that the central bank is still cautious as far as inflation is concerned. Mint Street is not yet ready to signal to Dalal Street that rate hikes are over.

The RBI has projected that inflation would ease to 5.2 percent in FY 24 against the earlier forecast of 5.3 percent. It foresees growth at 6.5 percent from the earlier forecast of 6.4 percent. That said, if inflation surprises on the upside, a  repo rate hike sometime this year can’t be ruled out.