April inflation validates RBI’s repo rate pause move: SBI Research


NEW DELHI: The moderation in the country’s retail inflation in April has confirmed the Reserve Bank of India’s assessment (RBI) decided to suspend the repo rate at its first monetary policy meeting in 2023 SBI Research.
Retail inflation in India fell sharply in April to 4.7 percent, or an 18-month low, from 5.7 percent in the previous month.
“This is an optimistic figure and could have implications for RBI’s future policy trajectory,” says SBI Research’s Ecowrap report.
“Item-by-item analysis shows that the weighted contribution of Food & Beverage declined a maximum of 41 basis points in April 23, mainly due to Wheat/Atta (other sources). Fruit inflation also slowed significantly as the weighted contribution from Mango declined 11 basis points on April 23.”
The Reserve Bank of India, at its first monetary policy review meeting of the fiscal year in April, decided to leave the main benchmark interest rate – the repo rate (the rate at which the RBI lends to other banks) – unchanged at 6.5 percent to assess the effects of the interest rate tightening so far.
The central bank conducts six bimonthly reviews of its monetary policy in a fiscal year.
Aside from the recent pause, the RBI has hiked the repo rate by 250 basis points cumulatively since May 2022 to fight inflation. Raising interest rates is a monetary policy tool that typically helps dampen demand in the economy, thereby helping to lower the rate of inflation.
of India retail trade Inflation has been above the RBI target of 6 percent for three consecutive quarters and only managed to fall back into the RBI’s comfort zone in November 2022. Under the flexible inflation targeting framework, the RBI is deemed to have failed to cope with price increases if CPI-based inflation is outside the 2-6 per cent range for three consecutive quarters.
Coming back to the SBI research, however, it raised concerns about India’s growth frontier.
“It is evident that climate change poses a significant threat to India and will significantly hamper future growth if friction points are left largely unchecked in a timely manner,” the report said.
Going forward, the RBI is expected to pause again in the repo rate at the June meeting.

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