Repo rate pause likely to boost business sentiment: Economists
New Delhi, Aug 5
Industry bodies and economists broadly welcomed the Reserve Bank of India's decision on Wednesday to keep the benchmark repo rate unchanged, saying the move should bolster business confidence.
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) said the decision helps interest rate stability which will boost business confidence, support investment and help sustain India's growth momentum amid global uncertainty.
Nirmal K. Minda, President, ASSOCHAM, said the RBI decision reflected confidence in India's strong macroeconomic fundamentals. A stable policy rate will encourage investments and sustain economic growth "while providing the necessary flexibility to respond to evolving global developments."
"The unchanged policy rate underscores the RBI's balanced approach of fostering growth while maintaining price stability and safeguarding financial stability," he added.
ASSOCHAM also welcomed the RBI's upward revision of GDP growth to 6.7 per cent, noting it was close to the industry body's own projection of 7 per cent.
Madhavi Arora, Chief Economist, Emkay Global Financial Services, described the policy tone as "cautious albeit constructive," balancing uncertainties from the Middle East conflict, tighter global financial conditions and El Niño against resilient domestic growth and strong foreign currency inflows.
"Despite 1Q inflation undershooting RBI's forecast, the MPC has retained its emphasis on El Niño risks, while reiterating that any near-term price pressures would largely be supply-driven unless they broaden into second-round inflation effects for monetary policy to act," she noted.
Dr. Madan Sabnavis, Chief Economist at Bank of Baroda, said the RBI's decision was buttressed by a marginal hike in GDP forecast by 10 bps and decline in inflation by 10 bps. Higher growth and lower inflation warranted a status quo view.
"The statement highlights the strengths of the economy which is evident from different indicators which gives a sense that growth will be on the steady path," Sabnavis said.
He warned, however, that inflation could remain elevated in the second half of the year and in Q1 FY28, leaving open the prospect of a rate hike "probably towards the end of CY2026".
— IANS
Reader Comments
As someone who took a home loan last year, this is welcome news! But honestly, I wish they had cut rates instead. EMIs are eating up a big chunk of my salary every month. Middle class is struggling. 💸
Finally some sensible decision. Last few years inflation has been eating our savings, but this pause shows RBI is serious about controlling prices while supporting growth. Rate hike later in CY2026? Let's hope that doesn't happen. 🤞
Their GDP growth forecast of 6.7% is good but I'm concerned about El Niño impacting our farmers. Monsoon has been weak in many parts of Karnataka. If agricultural output falls, food prices will soar and that 4% inflation target will be hard to meet. The RBI should keep a close watch.
Interesting. As an NRI tracking Indian markets, this stability is reassuring. The pause should keep FII inflows steady and rupee fairly stable. Good call by MPC to wait and watch rather than react hastily. Solid macro management overall.
So they'll keep us in suspense until end of 2026 for a hike? Meanwhile, crude prices and Middle East tensions could flip everything upside down. I hope they're prepared for a contingency because "wait and watch" isn't always the best strategy. ⏳
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