The Reserve Bank of India (RBI) on Thursday stunned the street by keeping the policy repo rate unchanged at 6.50 per cent but indicated the tightening cycle is not over and it is even ready to raise rates if inflation stubbornly stays high.

At its first bi-monthly review of the fiscal, the monetary policy committee (MPC) did not tamper with the repo rate as it took a pit-stop to gauge the effect of its past actions which are still working out in the system.

While the decision was unanimous, the Street hadexpected the RBI to increase the repo rate by 25 basispoints to control inflation which was above its tolerance level for two months in arow.

The committee had first raised the rates by 40 basis points at an unscheduled meeting in May last year,followed by the hikes of 50 basis points each in June, August, and September. It raised rates by a further 35 basis points in December, followed by a hike of 25 basis points in February.

The decision brings huge relief to borrowers whohave seen a 250-basis point increase in some floatingrate loans since May lastyear leading to higher EMIs or their loan tenures getting extended.

The MPC also decided by a 5:1 split vote to “remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth”.

At the December meet, Ashima Goyal and J.R. Varma had voted against the withdrawal of accommodation. Now, Goyal has changedher stand.

In a televised address and while speaking to the media at the customary post-policy press meet, RBI governor Shaktikanta Das was clear that the surprise halt does not mean that it will be repeated, an indication that the RBI will not hesitate to hike rates again if the situation so warrants.

``Let me emphasise that the decision to pause on the repo rate is for this meeting only’’, he said.

“If I have to characterise today’s monetary policy in just one line. I would say as follows. It’s a pause, not a pivot,” Das later told reporters.

According to the RBI governor, the attempts to bring down inflation are not yet finished and the “war” will continue till a durable decline in inflation closer to the medium-term target of 4 per cent is seen.

``While we have kept the policy rate unchanged, this decision was taken based on our assessment of the macroeconomic and financial conditions with reference to information available upto today (Thursday).’’

Contrarian call

While most of the economists are forecasting an extended pause but not ruling out a surprise hike if inflation surprises on the upside again, economists at Goldman Sachs said in a note that headline inflation is likely to remain below the upper end of RBI’s target band of 2-6 per cent for the rest of the year.

The global investment bank expects the RBI to put rates on hold till the end of this calendar year.

It also forecast the RBI will maintain the stance of “withdrawal of accommodation” amid tight banking system liquidity.

However, they expect the RBI to start cutting rates from calender year 2024.

The Goldman economists said the RBI will go for two repo rate cuts of 25 basis points each in the first quarter (January-March) and second quarter (April-June) of 2024.