Economists and experts hailed the RBI MPC’s decision to keep the key interest rate unchanged for a second straight meeting as the Indian economy and financial sector remains resilient. The committee maintained the stance at ‘Withdrawal of Accommodation’ with the MPC voting in favour of this in the ratio of 5:1 as it maintains its “focus on inflation, citing delay in monsoon, El Nino impact and geopolitical uncertainties as upside risks to inflation”. Economists maintained their call that the RBI will be on an extended pause, even as few of them said that the RBI will initiate rate cuts in the January-March quarter of 2024.
The RBI MPC also kept the standing deposit facility rate unchanged at 6.25 per cent, and marginal standing facility rate and bank rate at 6.75 per cent. The SDF is the lower band of the interest rate corridor, while the MSF is the upper band. The RBI governor also announced that headline inflation is expected to remain above 4 per cent throughout the 2023-24 fiscal. The FY24 GDP growth projection too remained unchanged at 6.5 per cent.
Here are economists’ take on the RBI announcement…
Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company
The RBI is reminding of the greatest opening batsman Sunil Gavaskar. Standing without fear in front of a challenging global environment. Taking a fresh stance after scoring a century on a challenging wicket to reassure everyone that ‘Mai Hoon Na’. Indian economy is ideally balanced between growth and inflation under the RBI’s navigation.
Churchil Bhatt, Executive Vice President & Debt Fund Manager, Kotak Mahindra Life Insurance Company
Despite the recent moderation in headline inflation, the Committee remains vigilant on inflation. The discomfort on inflation is arising from slower than expected fall in global inflation and possibility of El Nino. As a result, the committee has only marginally revised down its FY24 CPI inflation projection by 10 bps to 5.1 per cent. On the other hand, the committee derives comfort from robust economic growth. Overall, the MPC remains non-committal on a policy pivot and has left the room open for ‘long policy pause’, as it aims for a CPI target of 4 per cent on a durable basis.
Ranen Banerjee, Partner, Economic Advisory Services, PwC India
The MPC expectedly continued with the rate pause as the inflation prints have come well within the tolerance band of 2 to 6 per cent and growth concerns persist. The stance has been kept as withdrawal of accommodation as that is the signalling the RBI wants for keeping the inflationary expectations anchored. The FY24 growth rate projection of 6.5% is more on the optimistic spectrum band as the number of downside risks listed are quite a many.
Ritika Chhabra, Quant Macro Strategist, Prabhudas Lilladher PMS
There were no surprises on the policy front as we were expecting RBI to hold the rates at 6.5 per cent. The central bank kept its stance unchanged to ‘withdrawal of accommodation’ as it maintains its focus on inflation, citing delay in monsoon, El Nino impact and geopolitical uncertainties as upside risks to inflation. We expect FY24 inflation at 4.9 per cnet slightly lower than RBI’s estimate of 5.1 per cent, as base effect turns favorable and imported inflation eases.
Lakshmi Iyer, CEO-Investment & Strategy, Kotak Investment Advisors Limited
Given global macro headwinds still visible, the members did not feel appropriate to change their stance. It looks like the market wait for rate cuts just got longer, as we saw Canada policy makers announce a surprise rate hike. Key incoming data dependency will continue to be the order of the day. Policy maker guardrails remain. Bonds may continue its sideways movement and continue to track global bond yields, specifically US treasuries.
Suresh Khatanhar, Deputy Managing Director, IDBI Bank
With inflation continuing to slide, the MPC’s decision to maintain a status quo on repo rates is on expected lines. Though the Indian economy continues to remain fairly resilient, the pause in the rate hike cycle augurs well as it would further help in arresting inflation, boosting investment and consumption sentiments. The lowering of the inflation projection for FY24 to 5.1 per cent signals towards a higher GDP growth and credit offtake can be expected to be higher. However, RBI’s readiness in taking quick decisions in case of any divergence from present expectations on the inflationary front calls for cautionary optimism across the board.
Gaurav Dua, Head Capital Market Strategy, Sharekhan by BNP Paribas
The MPC has retained the status quo on policy rates and the monetary stance of ‘Withdrawal of accommodation’ also remains unchanged which is in line with expectations. Certain sections of the market participants looking for dovish comments were disappointed with RBI maintaining a hawkish undertone. And rightly so, the Q4 GDP growth surprised on the upside, the inflation remains over 4 per cent level and the possibility of weak monsoons could provide upward pressure on inflation. Additionally, the global scenario also remains challenging and uncertain. So essentially the policy meet has turned out to be a non-event though the consensus expectations of rate cut timelines seem to have extended now.
Dharmakirti Joshi, Chief Economist, CRISIL
After a cumulative hike of 250 basis points (bps) last fiscal, the central bank has moved to the sidelines to see their impact on growth and inflation play out this fiscal. Growth in GDP has been resilient so far, with a sharp uptick to 6.1 per cent in the last quarter of fiscal 2023. Private consumption demand, however, was weaker than other segments. This is likely to moderate demand conditions in the current fiscal given that bank lending rates are now higher than pre-pandemic five-year average. A sharper slowdown in advanced economies will also weigh on growth, particularly in the second half of the year. Meanwhile, inflation based on the Consumer Price Index has begun moving downwards, in line with RBI expectations. However, risks from El Nino remain high and these could impact the upcoming kharif crop and fuel food inflation. We expect RBI to maintain status quo on rates this fiscal and initiate cuts in the January-March quarter of 2024.
Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities
RBI staying on a pause and maintaining its stance was in line with expectations. The RBI remains cautious on the inflation trajectory especially as inflation will remain above the 4 per cent target for the foreseeable future. We believe there are some downside risks to growth. We believe that rate cuts will be contingent on significant divergence in growth-inflation prospects. We maintain our call that the RBI will be on an extended pause.
Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE
The continuation of the status quo on the monetary policy, after a substantial decline in inflation in April, signals sustained support for growth amidst a persistent need for caution. The RBI has taken a balanced approach to containing inflation and managing external volatilities. Given this scenario, we can expect the tightening cycle to be nearing its end, which would boost private capex demand and support domestic consumption.