RBI MPC: Experts weigh in on the latest announcements from Das and his team

Rate this post

The Reserve Bank of India raised its key repo rate by a quarter of a percentage point on Wednesday, as expected, but surprised markets by leaving the door open for further tightening, saying core inflation remained high.

The central bank said its policy stance remains focused on withdrawing the accommodation, with four of six members voting in favor of that position.

Here’s what the experts have to say after the latest increase in the key repo rate per RBI:

The RBI credit policy is on the expected lines. Main indicators that show stability. Growth of 7% for the current year and 6.4% for FY24. Inflation also appears to be in range and for the current year of 6.5% and declining to 5.3% in the year fiscal 24. Both regarding the performance of the currency and foreign exchange reserves are in better condition. condition. General policy according to market expectations, said Kamlesh Shah, President of the ANMI.

“Today’s 25 basis point rate hike by the Reserve Bank of India has been in line with consensus expectations. However, we felt that the chance of a rate pause this time was at least 50%. On the inflation front, further weakening in India after April 2022 was the main reason why we expected a stall on this policy. By contrast, the Reserve Bank of India appears to have been more concerned with sticky high 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 their implications for the foreign exchange market influenced the Reserve Bank of India’s decision to carry out another rate increase. Barring an unexpected rise in inflation, we would expect the Reserve Bank of India to keep the policy rate unchanged for the remainder of 2023. This would be positive for both the debt and equity markets.” said. Sujan Hajra, Chief Economist and CEO, Anand Rathi Shares and Stock Brokers about the reasons for the walk.

Along the lines expected, the RBI has opted for a smaller dose of a 25 basis point repo rate hike taking into account the moderation in inflation, but continued vigilance on core inflation is required.

The overall stance has been maintained and has yet to be changed to neutral, indicating the RBI’s approach to taking calibrated steps to meet the challenges of the growth vs. inflation matrix, it said. Narinder Wadhwa, president of CPAI.

Persistent uncertainties and the volatile global scenario have prompted the RBI to revise next year’s GDP growth rate downward to 6.4% which, however, remains comparable to peers. The stock market is expected to respond positively to the measures announced by RBI, with the underlying resilience of the economy at the forefront. The RBI has also announced measures to expand the government securities market by amending the government borrowing and borrowing mechanism, which will also provide depth to the market and facilitate government borrowing for the upcoming fiscal year. The banking sector is also expected to respond positively with healthy credit growth and a positive real interest rate for depositors. Overall, RBI took a pragmatic approach with the intention of having an immediate focus on inflation while supporting growth over the medium term, it said. Jyoti Prakash Gadia, CEO of Resurgent India.

RBI-MPC voted to increase the repo rate by 25 basis points to 6.5 percent. This looks to be the final rate hike with inflation under control in the coming days, targeting 4% in 2024. We could see a rate reduction in the latter part of this year. can rejoice in the capital markets

The RBI decided to increase the repo rates by 25 basis points at the February meeting and now the repo rate sits at 6.5%, which is in line with street expectations. Since May last year, RBI has increased the repo rate by 250bp to bring inflation down to target levels. The possibility of a soft landing has risen in the US, while inflation has come down due to the decline in commodity prices from the peak and also due to the base effect now. India will continue to grow domestically at a robust pace of around 6.5%, while inflation will be well below the upper range of the RBI tolerance band of 6%. Now that we are nearing the peak of the interest rate hike cycle, we will see some slowdown in consumer discretionary as the effect of the interest rate hike kicks in. Until we get into an interest rate cut cycle, slowing demand will be a challenge for the next two to three quarters. Thereafter, we will see a cooling off in inflation, along with pent-up demand to get the consumer industry back on track. In the short term, the budgetary stimulus due to the change in personal tax rates and the good planting of the Rabi crop will support rural and urban consumption, while the government’s focus on Capex will support the growth of infrastructure in the economy. RBI’s comments and announcements are mostly in line with street expectations and therefore we do not see any material impact on the economy from the RBI rate hike decision. Inflation is expected to be around 5.3% in FY2024, while real GDP growth will average around 6.4%, so the repo rate is expected to peak at around 6.7% for this rate increase cycle.

Market momentum depends on how much the rate rises relative to expectations. Surprises generally follow volatility in the market; however, RBI has increased the rate hike by 25bp as per market expectations. When the interest rate rises, it affects both the economy and the stock markets because borrowing becomes more expensive for individuals and businesses, which has a ripple effect across all sectors. Higher interest rates mean lower terminal values ​​since the discount rate used for future cash flow is higher.

The financial sector has historically been among the most sensitive to changes in interest rates. Typically, during a rising interest rate scenario, the banking sector passes through rate hikes through floating rate loans while delaying deposit rate hikes, taking advantage of spreads, and widening spreads. . Banks are reporting strong revenue growth due to healthy disbursements, higher lending rates, and solid earnings growth on the back of promising developments. A shift to dovishness going forward by the RBI will lead to a rebound in the banking segment, while a prolonged dovish stance will hit deposit rates and lead to lower NIMs, more so for PSBs. Overall, the economy appears to be in good shape and a top rate of 6.7% is not an unusually high number for domestic markets, so we don’t see any material impact on the stock market, but we will keep a close eye on the impact. of second-order consumption, especially on the consumption side, said Anil Rego- Founder and fund manager at Right Horizons PMS.

Leave a Comment