RBI’s policy rate pause is set to continue for long term
While it is important for an emerging economy central bank to stay broadly in sync with the global interest rate cycle, one needs to recognize that, at present, the deviation in case of inflation and GDP growth from their respective trend-lines for Western economies is much more pronounced than in India.
The status quo on the RBI’s policy rates in April was perfectly in line with our expectation, though sharply in contrast to an overwhelmingly strong market consensus in favour of a 25 basis points (bps) hike. Since then, the swing in the context, backdrop and expectation from the monetary policy committee (MPC) meeting has been dramatic. At present, a status quo on the policy rates in June seems to be a foregone conclusion.