RBI MPC Meeting 2023 Highlights: Reserve Bank of India Governor Shaktikanta Das-headed Monetary Policy Committee has decided not to raise the repo rate, keeping it at 6.5%. The RBI MPC, with a 5:1 majority, maintained the withdrawal of accommodation stance. The RBI also stated the real GDP growth projection for FY24 is at 6.5%. However, fears of sustained core inflation remain persistent as weather-related vagaries, OPEC+’s surprise announcement and rising commodity prices. However, the global banking crisis has been heralded in by rising interest rates across the global central banks, which is driving concerns that rapidly rising rates does not expose the domestic banking system to any shocks.
“With an emphasis on inflation target of 4% and withdrawal of accommodation, RBI has kept a non-committal stance on such pauses in the forthcoming meeting. With lagged impact of cumulative 250 bps hike on inflation and persisting global financial uncertainties, repo rate is expected to remain at the current levels going forward as well,” said Rahul Shresth – Vice President at Avener Capital.
“MPC’s incremental action will be largely domestic data dependent. A longish pause continues to be our expectation. While stabilising Brent oil and monsoon verdict remain key events to watch, the bond levels will now focus on demand-supply and liquidity guidance from time to time. Meanwhile we expect 10-year GSec to stay in the range of 7.20%-7.40%,” said Radhavi Desphande, President & Chief Investment Officer, Kotak Mahindra Life Insurance Company.
“On the real side, domestic demand side indicators indicated by PMI and high frequency indicators remain strong but faces a probable downside risk through supply side inflation, weak external demand and tempered global financial market. Due to lag effect, full transmission of earlier rate hikes is yet to take place and this pause is necessary to ensure trajectory of long terms trend of inflation without tempering growth prospects,” said Esha Khanna, Assistant Professor, NMIMS Sarla Anil Modi School of Economics.
Our monetary policy is determined by domestic factors, never determined by US action: RBI Guv Shaktikanta Das
Interest rates alone have not been used to fight inflation, they have been used in conjunction with supply side measure: Deputy Governor Michael Patra
Monetary policy is always forward looking. There are so many external developments taking place, we will be watchful of the situation. We will take further action if and whenever appropriate: RBI Guv Shaktikanta Das.
The RBI Governor begins his address to the media following the policy announcement.
“Relaxation of offering NDF rupee derivatives to resident users in the onshore market will help deepen the rupee trades in the FX market and is a positive step towards rupee internationalization, especially with the backdrop of increased rupee bilateral trades,” said Vivek Iyer, Partner and Leader, Financial Services Risk, Grant Thornton Bharat.
“The Indian banking sector remains healthy, with due credit to the regulator’s stringent regulations. We expect the systemic credit growth to remain buoyant for the Mar’23 quarter. However, management commentaries on growth momentum sustenance going into FY24 would be crucial. While banks have seen a sharp NIM expansion so far, headwinds on margins will surface as banks step into FY24,” said Naveen Kulkarni, Chief Investment Officer, Axis Securities.
“RBI has chosen to tread an independent path despite the global headwinds and challenges and it is a welcome step to create the requisite atmosphere for growth and revival of the economy which is still at a nascent stage,” said Jyoti Prakash Gadia, Managing Director, Resurgent India.
“It is expected that going ahead the RBI will pause the rates at this level and start easing the rates from CY25. The central bank is aiming to strike a balance between growth rate and inflation,” Cyrus Mody, Founder & Managing Partner, Viceroy Properties said.
“RBI has proposed to permit banks with IFSC Banking Unit (IBU) to offer non-deliverable foreign exchange derivative contracts to residents. It is a welcome step towards deepening INR liquidity, moving towards internationalization of rupee and offering flexibility to residents in meeting their hedging requirements. After the announcement, some cheer was seen in INR. Overall, USDINR may find a strong support at 81.80 on intraday basis while 82.20 acting as a resistance. Positionally, consolidation may continue between 81.60-82.55 levels for some more time,” said Kunal Sodhani, VP, Global Trading Center, Shinhan Bank.
“The 6.5% GDP growth rate appears to be on the optimistic side when seen in the context of a slowing global economy,” said V K Vijayakumar, Chief Investment Strategist at Gojit Financial Services.
“From a real estate market perspective, the sector has weathered multiple home loan interest rate increases from a low of 6.5% to 8.75%, supported by favourable house purchase affordability and the strong desire towards home ownership. Therefore, a pause in any further rise in the lending rates should support the existing growth momentum in the housing sector,” said Shishir Baijal, Chairman & Managing Director, Knight Frank India.
“A robust rabi crop will most likely ease the pressure on inflation. A steep rate hike will hurt growth. Today's move also raises hope of a rate ease cycle to start as early as the October-December quarter,” said Colin Shah, MD, Kama Jewelry.
“The decision to pause at 6.5% was a positive surprise. We believe the RBI is concerned on the uncertainty from global financial markets and the pause is reflective of this concern. We view this policy as a hawkish pause. The tone of the policy remains concerns on inflation, especially core inflation and remains focused on reaching the 4% target over the medium term. The RBI remains comfortably on the growth front, for now. We believe the risks to this outlook is skewed towards the downside. We expect the RBI MPC to remain on an extended pause. Scope for further hikes is limited given our growth-inflation outlook and impact of the past rate hikes on the the same,” said Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities.
Government bond yields fell following the Reserve Bank of India's decision to maintain status quo on policy rates. This led to a sharp drop in the benchmark bond yield, which reached its lowest level in almost seven months. The 10-year benchmark bond yield fell to 7.1469%, down from 7.2857% prior to the decision.
The RBI has proposed to expand the scope of UPI by allowing pre-sanctioned credit lines to be accessed through the platform, which will further enhance the capabilities and convenience of the system for users: RBI Guv Shaktikanta Das.
A new centralised web portal for public to search unclaimed deposits will be launched: RBI Guv Shaktikanta Das.
“The RBI had the option of a rate hike or a pause. The pause was not entirely unexpected. The RBI will watch developments and data before taking the next call. The market expects the RBI to fetch maximum run and win the match on inflation and growth,” said Nilesh Shah, MD, Kotak Mahindra AMC.
India's CAD was at 2.7% of GDP for the first 3 quarters of FY23. The current account deficit is projected to remain moderate in Q4FY23: RBI Guv Shaktikanta Das.
We remain watchful and focussed on maintaining the stability of Indian rupee: RBI Guv Shaktikanta Das. The rupee falls below the 82 mark as the RBI MPC decided to maintain the current repo rate at 6.5%.
Domestic indices surged on Thursday after RBI MPC decided not to hike the repo rate, keeping the key lending rate at 6.5%. The NSE Nifty 50 was trading near 17,600 and Sensex jumped 140 points. Bank Nifty surpassed 41,150.
“The decision to maintain the repo rate unchanged is a positive sign for the banking and NBFC sectors, and it is expected to benefit other sectors such as real estate and infrastructure. However, the persistent inflation and global banking crisis remain areas of concern, and it is crucial to monitor the overall impact of the past rate hikes,” said Sonam Srivastava, Founder, Wright Research.
Inflation for FY24 projected at 5.2%: RBI Guv Shaktikanta Das
REAL GDP GROWTH PROJECTIONS IN FY24
Q1FY24: 7.8%
Q2FY24: 6.2%
Q3FY24: 6.1%
Q4FY24: 5.9%
Standing deposit facility will remain unchanged at 6.25%, Marginal Standing Facility also unchanged at 6.75%: RBI Guv Shaktikanta Das
Real GDP growth for FY24 is projected at 6.5%: RBI Guv Shaktikanta Das
When we started the rate cut cycle in 2019, the CPI was around 2% and the repo rate was 6.5%. However, inflation is 6.4% currently while the repo rate is 6.5% and given its current level, our policy can still be seen as accommodative. This is why the RBI MPC decided to maintain a withdrawal of accommodation stance: RBI Guv Shaktikanta Das
The repo rate has been maintained so that the MPC can assess the progress made so far, while closely monitoring the domestic and global situations. The MPC will not hesitate to raise the repo rate in future meetings: RBI Guv Shaktikanta Das