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RBI at its Monetary Policy Committee (MPC) has kept the repo rate unchanged at 6.50%.
This is for the third consecutive time that the Central Bank maintained the pause. It first hit the pause button in April 2023 after a cumulative rise of 250 bps since May 2022.
Sharing the rationale, RBI said in a press release, “Domestic economic activity is holding up well, supported by domestic demand in spite of the drag from weak external demand. With the cumulative rate hike of 250 basis points undertaken by the MPC working its way into the economy, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent, but with preparedness to undertake policy responses, should the situation so warrant.”
It further said, “The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.”
Deepak Agrawal, CIO-Fixed Income, Kotak MF believes that RBI is likely to stay on hold for the rest of the current year 2023. He said, “RBI prefers to be in ‘wait and watch’ mode to check if the recent food price inflation is getting generalized and prefers to keep rates on hold and keep the monetary policy unchanged.”
From an investment perspective, Sandeep Bagla, CEO, Trust MF sees this as the right time to add duration to a portfolio. He explained, “Next few months would be a good opportunity to add duration to the portfolio with a 12-month investment horizon.”
He added, “It would be difficult for risky assets to perform in the face of the headwinds caused by tight monetary and financial conditions.”
