RBI keeps finger on pause button, eyes on inflation

The monetary policy committee of the Reserve Bank of India (RBI) continued its prolonged pause in the key repo rate at 6.5%, pursuing durable signs of easing inflation amid volatile food prices.

Although the policy was unsurprising, the 10-year benchmark sovereign bond yield rose to 7.12% during the policy announcement, and closed at the same level, its highest closing level since 31 January. The equity markets stayed flat, with Sensex ending the day at 74,248.2 points.

The policy was on expected lines, showing how the thinking of market participants, analysts, media, and others was well-aligned, RBI governor Shaktikanta Das said at the beginning of the post-policy press conference. The rate-setting committee also retained the stance of “withdrawal of accommodation”.

Das pointed out five aspects of the latest MPC decision. First, inflation is moderating and gross domestic product (GDP) growth is robust. Second, the MPC remains focused on aligning inflation to its target on a durable basis and is satisfied by the progress made under disinflation, although the task is not yet finished. Third, the financial sector continues to be stable. Fourth, the external sector continues to be resilient. Lastly, as RBI moves towards a century of its existence — currently at 90 years — the central bank will continue to focus on preserving financial stability and promoting the financial sector and a payments system that is robust, resilient and future-ready.