The Reserve Bank of India last week unanimously decided to leave the repo rate untouched. After a series of rate hikes, totalling 250 basis points since last May, the Monetary Policy Committee has now hit the pause button, against wide expectation by experts of a 25 basis points repo rate hike. For FY24, the inflation rate is predicted at 5.2 percent while GDP growth is estimated at 6.5 percent.

This is, no doubt, good news for exporters. The 2.5 percentage point rate hike since May 2022 has played havoc on borrowers. Interest rates for home-buyers has gone up sharply and for some the repayment period is now be stretched by many years. At macro level, high interest rate has been posing challenge to both consumption demand and private investment, raising doubt about future growth prospects of the economy.

The RBI decision seems wise. The central bank chief has clearly indicated that this was only a temporary pause. The World Bank recently, while cutting down India's 2023-24 growth forecast to 6.3%, raised concern over high credit risk and its impact on consumption and private investment. Additionally, the world economy is still facing headwinds, and in this scenario, the RBI wants to ensure that India’s growth momentum continues.

The central bank seems to be equally concerned about inflation. It has made it clear that further rate hikes are on the cards if inflation does not moderate to its comfort zone. Price stability is 'the best guarantee for sustainable growth', the RBI chief has added. Considering risks such as higher global crude and commodity prices and extreme weather conditions, this argument sounds balanced.

I invite your opinions.