Bank of India keeps policy rate at 6.5%, defying market expectations

In a surprise move, the Reserve Bank of India (RBI) announced that it would keep its repo rate, the policy rate, unchanged at 6.5% during its latest meeting on April 6, 2023. This decision is contrary to market expectations, which had predicted an increase of 0.25%.

The RBI Board’s decision marks the first time since April 2022 that the policy rate has remained unchanged. At that time, the RBI began a cycle of tightening monetary policy to curb inflation.

The announcement had an immediate impact on the rupee, which depreciated by 0.15% to 82.04 rupees per dollar. Despite this, some experts believe that the decision to maintain the policy rate reflects the RBI’s confidence in the Indian economy.

Sonal Varma, chief economist at Nomura, noted that India’s inflation rate had already passed its peak and that this might have influenced the RBI’s decision. “While Nomura expects India’s headline and core inflation to decline in the coming months, it is possible that the RBI is taking a wait-and-see approach before making any further policy changes,” Varma said.

The RBI’s decision comes at a time of uncertainty for the Indian economy, which has been hit hard by the COVID-19 pandemic. While the country’s economic recovery has been relatively strong, inflation remains a concern, with food and fuel prices continuing to rise.

Many analysts had predicted that the RBI would raise interest rates to tackle inflation, but the Bank of India’s decision to maintain the status quo has surprised the market. As the Indian economy continues to navigate a challenging economic landscape, all eyes will be on the RBI to see what steps it takes next.

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