Companies across sectors such as real estate, automotive and consumer goods have welcomed the Reserve Bank of India‘s (RBI’s) temporary pause to rate hikes. This is the second time in a row that the central bank is holding its key repo rate at 6.5%, providing much-needed relief to consumers and firms. The RBI on Thursday trimmed its inflation estimate marginally to 5.1% from 5.2% projected earlier for FY24.
“I feel that the monsoon is perhaps one of the key reasons why the RBI is keeping inflation on watch. The food inflation over the next couple of months would be crucial, even though a good harvest is expected. On the flip side, the Australian Weather Bureau has warned of the El Nino effect, which is a sign of caution,” Soumya Rajan, founder and CEO at multi-family office Waterfield Advisors, said.
Speaking to FE, Mayank Shah, senior category head at Parle Products, among the country’s largest biscuit makers, said a softer outlook on inflation by the RBI was coming on the back of moderating commodity prices.
“Raw material prices have cooled and we have passed on the benefit to consumers,” he said. “Lower inflation will spur demand, especially, in rural areas, which was not the case in FY23. Also, with a pause to rate hikes and higher minimum support price for kharif crops announced this week, there should be more money in the hands of consumers. All these augur well for the consumer goods sector.”
A recent report by market research agency Nielsen said the fast-moving consumer goods market in calendar years 2023 would grow at around 7-9%, led by a revival in rural areas. Categories from foods to non-foods would gain from the spurt in consumption, Nielsen said.
Senior executives from the automotive and real estate sectors strike a note of optimism following the MPC’s decision to keep the repo rate unchanged. “India’s consumer price index (CPI) inflation eased to 4.7% in April 2023, below the RBI’s upper tolerance limit of 6%,” said Niranjan Hiranandani, MD, Hiranandani Group. “The RBI governor has indicated that inflation may remain above the tolerance level in FY24 as external geopolitical factors last longer than expected. This could explain for the cautious stance the RBI has taken in this policy.”
Manish Raj Singhania, president, Federation of Automobile Dealers Association of India (FADA), said a rate pause would boost vehicle demand. “The preservation of the status quo in the repo rate plays an integral part in maintaining the momentum of vehicle demand, thereby positively impacting auto sales at a time when rural sales are coming back on track.”