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.
The RBI MPC, with a 5:1 majority, maintained the withdrawal of accommodation stance: RBI Guv Shaktikanta Das
RBI MPC decided not to hike the country's repo rate, keeping the key lending rate at 6.5% unanimously: RBI Governor Shaktikanta Das
The global economy is facing headwinds. Bank failures and contagion risks are forcing central banks to take additional notice. What we are witnessing today is unprecedented uncertainty in global politics: RBI Governor Shaktikanta Das
Domestic indices remained under pressure ahead of RBI MPC rate hike announcement. The NSE Nifty 50 fell 27.15 pts or 0.15% to 17,529.90 and BSE Sensex dipped 96.19 pts or 0.16% to 59,593.12. Bank Nifty plunged 130.90 pts or 0.32% to 40,868.25. The top gainers on Nifty 50 were Larsen & Toubro, BPCL, Adani Enterprises, Bajaj Auto and Dr Reddy while the top losers were Hindustan Unilever, Hero MotoCorp, Nestle India, HCL Tech and Coal India.
“There have been increasing concerns that rapid rate hikes by central banks have been a major driver for recent failures in small banks of the US and EU. Thus, RBI will have to balance its commitment towards taming inflation while ensuring that India's financial system is not exposed to extraordinary shocks,” said Rohin Agarwal, Vice President at Avener Capital.
“A 25 bps hike would imply ex-ante real rates at around 1.4% – keeping one-year forward inflation forecast as the anchor, giving them enough buffer above their supposed forward neutral real rate of ~1%,” said Madhavi Arora, Lead – Economist, Emkay.
“The course of rate hike is more likely to be aligned with the stance taken by key central banks such as the US Fed,” said Shishir Baijal, Chairman & Managing Director, Knight Frank India.
The MPC consists of three RBI officials, including the RBI Guv, and three external members appointed by the central government. The external members are Shashanka Bhide (Honorary Senior Advisor, National Council of Applied Economic Research, Delhi); Ashima Goyal (Emeritus Professor, Indira Gandhi Institute of Development Research, Mumbai); and Jayanth R Varma (Professor, Indian Institute of Management, Ahmedabad).
If the RBI hikes the repo rate by 25 bps, the key lending rate will become the highest in seven years, from April 2016 onwards.
“Reigniting fears of a spike in inflation are the rise in crude oil prices to $81 a barrel after a surprise decision by the OPEC nations to slash production,” said Prashanth Tapse, Senior VP (Research), Mehta Equities, while predicting the RBI may raise the key lending rate by 25 bps.
SGX Nifty traded in the red, indicating a lower start for the domestic Indian equity markets ahead of the RBI's policy announcement. Nifty futures traded at 17,579 down 45.5 points on the Singaporean Exchange.
February 8, 2023: Repo rate increased by 25 bps to 6.50%
December 7, 2022: Repo rate increased by 35 bps to 6.25%
September 30, 2022: Repo rate increased by 50 bps to 5.90%
August 5, 2022: Repo rate increased by 50 bps to 5.40%
June 8, 2022: Repo rate increased by 50 bps to 4.90%
May 4, 2022: Repo rate increased by 40 bps to 4.40%
According to a Reuters Poll, most of the respondents (20 out of 36) anticipate that the central bank will continue to adopt its 'withdrawal of accommodation' stance. On the other hand, the remaining 16 respondents believe that the bank will switch to a neutral stance.
“The policy tone is expected to be balanced, albeit non-committal, with its move to keeping a ‘neutral’ stance. The MPC will be deriving comfort from the: 1) recent de facto less (perceived) Fed tightening/easing, 2) monetary-policy lags of past hikes, 3) improving external sector dynamics, and 4) system liquidity being back in deficit and call rate hugging repo rate,” said analysts at Emkay.
“The supply side issues likely to be created due to unseasonal rains damaging the crops are another pressing factor for the additional inflation control requirement,” said Jyoti Prakash Gadia, Managing Director, Resurgent India.
“Given that Federal Reserve & European Central Bank have gone ahead with rate hike in spite of recent global developments and Q4FY23 inflation numbers are higher than RBI projections, RBI will hike repo rate by 25 bps to 6.75%,” said Deepak Agrawal, CIO – Debt, Kotak Mahindra AMC.
In February, the on-year increase in domestic CPI stood at 6.44%, which was slightly lower than January's figure of 6.52%. However, the inflation rate has exceeded the central bank's desired range of 2%-6% in ten out of the last twelve prints.