Shaktikanta Das, Governor of the Reserve Bank of India (RBI), announced that the monetary policy committee (MPC) raised the repo rate by 25 basis points (bps) to 6.50 per cent and removed its accommodative stance to combat inflation. The RBI also forecasted that inflation will remain over the 4 per cent target, averaging 5.6 percent in the fourth quarter of 2023-24.
This is the first MPC meeting since Finance Minister Nirmala Sitharaman delivered the Union Budget 2023-24 to Parliament. The Monetary Policy Committee met from February 6 to February 8th. The central bank also stated that GDP growth will stay at 6.4 per cent in 2023-24.
The RBI has been instructed to keep retail inflation at 4 per cent with a 2 per cent cushion. Due to global supply chain concerns caused by the Russia-Ukraine war, the bank has failed to control inflation levels for three consecutive quarters since January 2022.
Governor Das also stated that the Indian rupee would remain the least volatile among Asian peers in 2022 and 2023. In his statement, he also stated that India’s current account deficit will decline in the second half of 2022-23 and stay manageable.
Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stock Brokers says, “The 25 basis points rate hike by the Reserve Bank of India today has been in line with the consensus expectations. We, however, felt the possibility of a rate pause this time around was at least 50%. On the inflation front, the major softening in India post April 2022 was there main reason for us to expect a standstill in this policy. On the contrary, the Reserve Bank of India seems to have been more bothered about the high and sticky core inflation for more than a year. More importantly, the continued rate hikes by the Bank of England, the ECB, and the US Federal Reserves and the implications of these in the foreign exchange market influenced the decision of the Reserve Bank of India to go for another rate hike. Unless there is an unexpected flare in inflation, we would expect the Reserve Bank of India to maintain an unchanged policy rate for the remainder of 2023. This would be positive both for the debt and equity markets.”
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Shiv Parekh, Founder hBits, says “With inflation still prevailing, the repo rate hike was expected. On the other hand, it also has to be considered that it will widely effect businesses. This is the sixth hike on the repo rate. As the rate has been hiked by 25 bps, this could make the buyers apprehensive and they might adopt a wait-and-watch attitude in the real estate sector. Most importantly, when seen on a positive note, in varied sectors, the continued wage and job growth will provide a cushion in the short term for purchasing decisions. In the covid times, low home loan interest regime boosted the housing demand and enabled a robust recovery in the real estate sector post pandemic.
The overall outlook for India Inc looks positive with higher affordability and disposable income in the hands of new-age investors. Investing in the commercial real estate sector is a good option at present as it can shield against direct impact.”
Poonam Tandon, CIO, IndiaFirst Life Insurance Co. Ltd, stated, “As widely expected, the RBI raised Repo rate by 25bps while maintaining the stance of focus on withdrawal of accommodation. Standing Deposit Facility rate and Marginal Standing Facility rate were also increased by 25bps to 6.25% and 6.75%, respectively. The governor stated that reduction in size of rate hike provides opportunities to see the impact of hikes done so far. The statements highlighted that global economic outlook doesn’t look as grim as few months ago and growth prospects have improved in major economies. The Governor stated that CPI moved below 6% during November-December 2022 mainly on strong decline in prices of vegetables however core inflation continues to remain sticky. CPI is projected at 6.5% in FY 2023 (lowered from 6.7% earlier) with Q4 FY 2023 at 5.7% while CPI for next year is projected at 5.3% on the assumption of a normal monsoon. The Real GDP growth forecast for FY 2024 is projected at 6.4%. The risks are evenly balanced for both GDP & Inflation forecasts. The Governor further stated that calibrated action is needed to keep inflation expectations anchored, break core inflation persistence, and strengthen medium-term growth prospects. Overall, the policy tone seemed cautious with emphasize on data dependence.”
Amit shankar, Vice President- Credit, Vivriti Capital, says “RBI’s prudent approach to long term discipline has been well established amongst global economies. Continuing with the same theme, 25 basis points hike in repo rate has been targeted to control inflation rather than provide short term relief to slowdown concerns. We expect the inflation to stay within permissible limits given RBI’s continued cautious outlook. While in near term this may lead to slower credit growth in general, there are ample opportunities of credit discovery and solid mid-market companies requiring growth capital that could provide impetus to the underwriting activity. We expect RBI to switch to a dovish stance if inflation moderates and economic activities pick up.”
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