RBI's rate pause will keep long-term growth prospects intact: Economists
New Delhi, June 5
The Reserve Bank of India's decision to keep policy repo rate unchanged focuses on preserving financial stability and will keep growth prospects intact in the long term, economists and industry leaders said on Friday.
Dr Ranjeet Mehta, CEO and Secretary General, PHDCCI, said the policy decision reflects a balanced view of upside risks facing the economy. While external uncertainties have increased, RBI's move created a conducive environment to keep medium to long term growth prospects intact.
"Although inflation remains within the target range of plus or minus 4 per cent, geopolitical risks affecting global supply-chain have increased dampening GDP growth prospects for FY2027 but the Indian economy still remains resilient with strong domestic demand", added Rajeev Juneja, President, PHDCCI.
Experts also warned that supply shocks, high energy prices and a likely below‑normal monsoon could temper growth prospects.
Madan Sabnavis, Chief Economist, Bank of Baroda, forecasted possible rate hikes later in the year if inflation rises toward 5.9 per cent.
"We are looking at 1 to 2 hikes this year. It does look like there is a monsoon impact which has been buffered here," Sabnavis said.
He said "positive surprises" from the RBI were the "aggressive and comprehensive steps taken to get forex through FPI, ECB and FCNR (B) deposits."
The forex market has reacted positively, and it needs to be seen whether this can change the direction of FPI flows in the debt segment, he added.
Binod Kumar, MD and CEO, Indian Bank, called measures to stabilise the rupee a welcome move.
"Amid a geopolitical crisis, the Indian economy displayed great resilience and has withstood global headwinds. RBI's decision to maintain rates underscores its focus on growth," Kumar said.
"Demand in Retail, Agriculture, and MSME (RAM) segments will continue to grow as policies to improve economic conditions and the health of the economy are implemented. This policy also enhances confidence in the fundamentals of the Indian economy," he added.
Tribhuwan Adhikari, MD and CEO, LIC Housing Finance, said a stable rate regime should support housing demand.
The continuation of the current rate environment is expected to support borrower confidence, improve credit flow, and sustain housing demand across markets, he said.
— IANS
Reader Comments
I'm a small business owner and this pause gives us some breathing room. But I wish the RBI would do more to ease credit for MSMEs. The global supply chain issues are real and we are feeling the pinch in raw material costs. Hope the government also steps in.
Interesting analysis. The RBI seems to be playing a balancing act between inflation and growth. The mention of possible rate hikes later in the year if inflation reaches 5.9% is concerning. Let's hope the forex measures work and FPI flows improve.
As someone looking to buy a home, stable rates are a relief. LIC Housing Finance CEO is right that this will support demand. But I worry about inflation eating into my savings. The RBI should also focus on making fixed deposits more attractive for common people.
The resilience of the Indian economy is commendable. While the RBI's decision is prudent, the article rightly points out risks from geopolitical tensions and monsoon uncertainty. The government needs to ensure agricultural support is in place to avoid supply-side shocks.
Good stability measure but I feel the RBI could have slightly reduced rates to boost flagging demand. The MSME sector is still struggling despite claims of resilience. Let's see how the forex measures pan out - we need more FDI inflows.
T Tanya I