RBI Monetary Policy: FY23 GDP growth projected at 7.8%; industry leaders give thumbs up

RBI Monetary Policy

The Reserve Bank of India (RBI) on Thursday projected the economic growth rate for 2022-23 at 7.8 percent. The growth rate is projected to be lower than 8-8.5 percent, as mentioned during the Economic Survey by the Finance Ministry.

Besides, the RBI’s Monetary Policy Committee (MPC) have kept the key interest rates unchanged and for the tenth time in a row the MPC maintained the status quo.

The three-day RBI MPC meeting started on February 8, and ended on February 10. The meeting was held back by a day as Maharashtra government declared a day of mourning on February 6 following the death of legendary singer Lata Mangeshkar.

Industry leaders’ reaction

Atanu Kumar Das, MD & CEO, Bank of India

Continued policy support commits to durable and broad based recovery across real segments.

Venkatraman Venkateswaran, Group President & CFO of Federal Bank:

RBI surprised the market by continuing its “accommodative stance” and not increasing the reverse repo rate, which was widely expected. RBI continues to prioritise growth over inflation and at the same time acknowledging risk to inflation. They have adopted a cautious stance and to support recovery of the economy. The inflation projections appear optimistic given the rising oil prices and supply side constraints.

HP Singh, Chairman & Managing Director, Satin Creditcare Network Limited.

“Considering inflationary concerns, the central bank’s decision to maintain a status quo on interest rates- keeping the repo rate unchanged at 4% and the reverse repo at 3.35% – is a welcome move, and so has its decision to continue to maintain an accommodative stance. Expectations were that RBI would hike the reverse repo rate to lower excess liquidity flushed into markets owing to the pandemic. Also, the RBI Governor Shaktikanta Das’ forecast of growth coming in at 7.8% in FY23 is another reason for a bullish view going forward. This, coming soon after the boost to the fintech industry in Budget 2022 – with an increased focus on financial inclusion by enhancing the banking and infrastructure framework in the country, among other aspects, gives us reason for increased optimism.”

Ravi Subramanian, MD & CEO, Shriram Housing Finance on RBI Monetary Policy

“The tone of the MPC’s monetary policy statement was more dovish than expected, yet, the status quo on key policy rates is a positive for the housing finance sector, especially given the absence of any impetus in the Union Budget 2022.

The current environment is conducive to home affordability and has aided the end-consumer demand, as reflected in the sustained growth in home loan disbursements over the last four months, despite the challenges posed by the third wave of the COVID-19 pandemic. Shriram Housing Finance recorded its highest ever quarterly disbursements in Oct-Dec, a bulk of which were to the affordable housing and mid-income segment. We expect the momentum to sustain in the current quarter led by a revival in urban consumption and positive consumer sentiment across Tier-2 and Tier-3 cities.

Also Read: Pandemic made us more agile than ever before: Ravi Subramanian, MD and CEO, Shriram Housing Finance

The central bank seemed sanguine on domestic inflation, assuaging some concerns on the higher cost for construction. Further, with the Omicron wave starting to abate, the government’s focus on infrastructure and housing should ensure that demand for home loans remains buoyant going into FY23.

Dhiraj Relli, MD & CEO, HDFC Securities

“The MPC of the RBI decided to keep key rates unchanged at its meet on Feb 08-10 and maintained accommodative policy stance. The outcome was more dovish than most economists expected. Though the intent of the RBI to support the recovery in economy in the face of disruption due to Omicron variant is commendable, economists will now fear whether the RBI will fall behind the curve, having maintained the easy monetary stance longer than most other Central Banks had. The RBI has projected 4.5% CPI in FY23 (vs 5.3% for FY22), with CPI expected to fall sustainably below 5% in Q3FY23. One hopes that the inflation trajectory will soon come under control and the bet of the RBI pays off. Quarterly GDP growth projections remain volatile due to base effect with 4.5% growth projected for Q4FY23 compared to 7.8% for the whole of FY23. Equity markets may temporarily welcome this decision but will be largely driven by the balance Q3 Corporate results, outcome of state elections and changes in global risk appetite.”

Abheek Barua, Chief Economist, HDFC Bank

“The RBI policy was largely on expected lines with, yet again, a clear emphasis on ensuring that the economy is on a path of durable growth recovery. It showed a clear tilt towards growth and a view that inflation, where elevated, is driven more by the supply disruptions rather than entrenched demand side pressures. Also, its projections show that inflation is on a downward trajectory. This was the first policy of the calendar year and perhaps sets the tone for the rest of the year. Were that indeed the case, the RBI is likely to follow a gentle approach to the normalization and ultimately withdrawal of monetary support unlike Western central banks that have switched to a hyper-aggressive mode. This is consonant with the growth and inflation dynamics specific to India.”

Reeju Datta, Co-Founder, Cashfree Payments

“Currently the use of eRUPI is popular for use-cases like disbursal of government benefits, primarily for Covid 19 vaccinations. The former cap of Rs.10k also restricted its use for smaller value use-cases. This cap is now enhanced for government use-cases upto Rs. 1 Lakh, broadening the scope of eRUPI issue to larger value use-cases. eRUPI’s key benefit for governments is in enabling penetration among the unbanked and feature phone users, allowing issue without needing the recipient’s bank account or KYC. The proposal will further help in the delivery of various government schemes to the beneficiaries more efficiently. In addition to govt issued vouchers, extending this new cap to other B2C use-cases should also be considered, by improving the acquiring infrastructure for eRUPI and integrating it with existing POS systems. This will also encourage its use by private corporates and for other customer segments as well, such as larger value corporate gifting, transit/payroll/student cards, forex travel cards, etc.”

Shrey Aeren, Managing Director & Country Head of Berkshire Hathaway Home Services Orenda

The decision to maintain the repo rate and reverse repo rate by the RBI; is a welcome step. There were lots of speculations that the rates might change during the policy meeting to reduce the impact of inflation. This status quo will create demand for high-involvement products like real estate. Liquidity along with low interest is the key to the recovery of the real estate industry and the overall economy. The real estate sector is showing signs of recovery and needs government hand-holding for a few more quarters.

Shiv Parekh- Founder, hBits

With an accommodative policy stance, the cost of funding will not go up for the real-estate sector; this is a welcome move at this juncture. The real-estate sector works on sentiments and with no change in interest rates, we expect more and more investors to flock towards quality investments and grab opportunities; this has been missing in the sector for a long time. With increased investment in the sector, more employment will be generated which is the key focus for the government right now.

Also Read: Budget 2022 highlight digital diversity in finance: Experts

Honeyy Katiyal- Founder, Investors Clinic

The MPC is to be commended for maintaining an accommodative stance. The prevailing low home loan rates are enticing for homebuyers and visibly the growth in number in housing sales is reflective of the constant policy support. The Government has been supportive and is expected to continue taking affirmative measures as long as it is necessary to revive the economy and alleviate COVID-19 impact. We expect the positive sentiment will further bring cheers to real-estate developers.

Haresh Mehta, CMD, Rohan Lifescapes

“The progressive announcement made by the RBI, to keep the repo rates unchanged is very thoughtful and motivating. The decision on holding on to the existing rates will help the real estate sector to gain more demand. The fact that the rates will remain unchanged is definitely falling in the favour of all the home loan borrowers as the affordability quotient will continue to be there in the current time of uncertainty. With the continuation of the same old rates, it is expected that consumer sentiments will be highly optimistic when it comes to buying a home. The consumption in the residential space is expected to expedite with this move of the RBI.

Overall, the decision taken by RBI is warmly welcomed as it will definitely be contributing towards the growth of the country’s GDP.”

Gautam Thacker, President, NAREDCO – Neral-Karjat Unit

“RBI keeping the policy rates unchanged is a welcome move aimed at further strengthening the Economy post covid it is targeted to keep the buying sentiments high. In short, it’s a very positive decision for the Indian Economy.”

Anish Mashruwala, Partner, J Sagar Associates (JSA)

“The RBI MPC statement today underlined its supportive stance towards growth and revival to pre-pandemic levels, keeping in line with the recent Budget. However, while ensuring that there was positive messaging around growth and revival measures, the RBI did not lose sight of its inflation oversight and check and the announcement had calibrated caution to deal with any external shocks related to crude prices and the resurgence of any Covid variant. Accordingly while keeping policy and interest rates unchanged as per market expectations it was also emphasised that both core inflation and headline inflation were within tolerance limits and were being monitored. The announcement further stated that given the RBI measures and the outlook an accommodative stance on policy measures would also be possible in the near future indicating that a continued growth trajectory was being prioritised to bounce back from the pandemic. The announcement also recounted the success of various RBI action on the banking and non-banking industry during the pandemic as well as the actions to maintain liquidity. The announcement did keep the “icing on the growth cake” for last by announcing additional measures at the end. In particular the enhancement of the limits by Rs. 1 lakh crores to take the limit to Rs. 2.5 lakh crores for FPIs in the long term debt investment under the VRR route will be cheered by both domestic industry and foreign investors. The MSMEs were not left behind in the party with the increase in the settlement limits in NACH from the current Rs. 1 lakh crore to Rs. 3 lakh crores under the TReDs receivable discounting platforms for MSMEs. All in all today’s was a very positive announcement for a return to normalcy from the pandemic and as the Governor indicated that while protecting life remains the first priority in the wake of the pandemic, economic livelihood is also the rising focus in the list of priorities.”

Also Read: Budget 2022: Fintech leaders mark it as massive boost in digital infrastructure

Madhavi Arora, Lead Economist, Emkay Global Financial Services.

The MPC expectedly kept the key rates unchanged unanimously and reiterated its accommodative stance both on rates and liquidity. However, Prof Jayanth Varma’s dissent on continuation of accommodative stance for foreseeable future continues to keep MPC in split state. The possible hike in fixed reverse repo was a close call and it seems the RBI gauged that markets need to be assuaged over material tightening of financial conditions ahead as global dynamics change and decided to stay put.

The gradualist approach toward liquidity and rate normalization may be challenged by various global and domestic push-and-pull factors. Nonetheless, a huge bond supply in FY23 (even with upside surprise on tax revenues) will require the RBI’s invisible hand in a more visible fashion, implying return of a pre-committed GSAPs going ahead. An uncomfortable RBI may neutralize that with CRR hikes, albeit it will face some communication challenges.

We note the macro adjustment owing to changing global and domestic dynamics has so far been borne by the rates market while the FX market has been resilient. Amid ultra-elevated term premia, India’s current real rates look reasonable vs. EMs, given the present crosscurrents. This could give some leeway to the RBI to conduct shallow normalization.

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