RBI Monetary Policy HIGHLIGHTS: Repo rate unchanged at 6.50%

“The RBI policy today is very pragmatic & positive. RBI took comfort from lower core inflation & benign global conditions. We expect rate cuts probably to start in H2CY24 preceded by a change in forward guidance & stance on liquidity once RBI has greater comfort on dissipation of one-off food price shocks. With global & domestic policy rates peaking & inflation momentum slowing down, the environment for fixed income is constructive with opportunity to participate in capital gains as the rate cycle turns.”

– Anurag Mittal, Head of Fixed Income, UTI AMC

“The recommendations are consistent with the MPC’s calibrated measures to rein in sticky inflation. Through the MPC actions, RBI has managed to keep the Indian economy resilient, which has translated into a growth momentum in an unsettled and gloomy global backdrop. The MPC team’s foresight in prioritising inflation control by draining out excess liquidity through measured rate hikes and pauses is commendable. It has worked well, alongside supply-side measures taken by the government, to tame stubborn inflation. Along with the rate hikes, the MPC also announced some additional measures. It will start allowing reversal of liquidity facilities under the Marginal Standing Facility and the Standing Deposit Facility even during weekends and holidays for better fund management. Also, it plans to increase the transaction limit to Rs 5 lakh for UPI payments to hospitals and educational institutions. These steps will accelerate the digital India movement and improve ease of conducting financial transactions. We are confident that the MPC’s announcements will help India achieve the targeted growth figures and bring down inflation to 4%.”

“The RBI’s decision to remain on a pause along with retaining the withdrawal of accommodation stance was in line with expectations. The policy avoided any surprises while retaining a hawkish tone in its communications, as expected. The revised FY2024 GDP growth estimate at 7% was as expected too. Concerns on food inflation were highlighted which can impart upside to headline inflation. We believe that inflation risks remain on the upside for at least next few months from food inflation. The good part is that growth remains resilient and core inflation remains under check. We maintain our call for a prolonged pause on the repo rate at 6.5% well into FY2025 while liquidity over the medium term will be aimed at being close to neutral.”

– Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities

“Maintaining the status quo on policy rates were on expected lines given macro factors globally and in India. Announcement of framework on Web Aggregation of Loan products and setup of Fintech Repository is a welcome move to enable responsible growth in digital lending by ensuring fair practices, customer protection and transparency. Cloud facility for Financial Institutions (FIs) is a step in the right direction for ensuring data privacy, date security and integrity.”

“The MPC’s decision to keep the key policy rates steady while staying the course on monetary tightening is the best policy prescription that the central bank could deliver at this point of time. The tightening cycle, in my view, will continue till the headline inflation returns to the below 4% mark. For this to happen, we may have to wait for a few quarters more as food price inflation is listed as a major downward risk in the near term. The point, however, to note here is that the past policy actions have started showing results as mirrored in the moderating core inflation print. As economic expansion gathers momentum with the apex bank projecting the real GDP growth at 7% for the current fiscal, a full 50 bps up from its earlier forecast, it is only prudential for the central bank to continue its disinflationary stance. I don’t expect a rate cut on the RBI’s table any time soon.”

– VP Nandakumar, Managing Director & CEO, Manappuram Finance

“On anticipated lines, the RBI unanimously opted to maintain the benchmark repo rate at 6.5% for the fifth time in a row, underscoring that despite the “resilience and momentum” of the Indian economy, upside risks to food inflation in November and December might materialise. The central bank’s tightrope walk between strengthening demand and inflationary risks will possibly continue for longer given the conflicting push and pull of macroeconomic parameters.

On the one hand, we have household consumption being supported by robust urban demand as well as a gradual but enthusing turnaround in rural demand. Having said that, risks in the avatar of a rising tide of global protectionism, ratcheted debt levels, progressively worsening geopolitical hostilities and climate catastrophes will operate as inflationary drivers. On a side note, the move by the central bank to permit reversal of liquidity facilities on weekends and holidays was much needed, and will be warmly welcomed by the banking community.”

“The years 2020 to 2023 will perhaps go down in history as a period of ‘Great Volatility’,” said Shaktikanta Das.

“The MPC will be highly alert to any signs of derailing of the ongoing disinflation process. Based on the evolving situation, the MPC will take appropriate action to reach the 4 per cent target,” said the RBI governor.

“Moving forward, inflation management can not be on auto-pilot. The future path is expected to be clouded by uncertain food prices. CPI data for November is expected to be high,” said Shaktikanta Das.

“On the inflation front, the summer of 2022 is behind us. We have made significant progress in bringing down inflation. The steady decline in core inflation indicates that monetary policy is working,” he said

“The decision of the central bank to keep policy rates unchanged is in line with expectations. The Indian economy is showing resilience with GDP growth for Q2 having exceeded forecasts, which is a good sign of a sustainable growth momentum. As fundamentals of the economy remain strong with banks and corporates reporting healthier balance sheets and fiscal consolidation on course, the external balance with strong forex reserves provides a cushion against external shocks. A broad-based easing in core inflation certainly points towards past monetary actions yielding desired results. Domestic economic activity is holding up well as assessed by the RBI and the MPC remains alert and prepared to undertake appropriate policy actions as warranted – this provides a good sense of linear growth across sectors for the remaining part of the financial year.”

“Steady policy interest rates and maintained policy stance was widely expected and aligns with the trajectory of key global central banks. The undertone however remains precautionary over inflation risks in the upcoming months due to seasonal volatility in food prices. The decision will continue to support the existing momentum of residential real estate demand in India. Despite the escalations in the borrowing costs, the overall housing market has continued to remain upbeat; however, the momentum in the affordable segment has lagged. Thus, a pause is supportive of catering to the housing needs of the vulnerable segment.”

“With the repo rates unchanged in the third and final quarter of the year, the MPC seems familiar with the governor’s intent to bolster economic growth and ensure continued resilience in the economy. We note the government’s sustained efforts in driving an investment push in India, healthy corporate profits, and a reduction in bank non-performing loans which will keep investment buoyant despite elevated input costs. We also expect India’s exports to perform well, propelled by performance in services exports. Fighting rising oil prices and inflation remains an ongoing concern due to several factors globally. However, the prolonged pause on repo rates will fare well for corporate India.”

– Anu Aggarwal, President & Head Corporate Banking, Kotak Mahindra Bank

“Expectedly the MPC has maintained a status quo in rate and stance. The MPC has retained focus on 4% inflation being the medium target, with monetary policy actions to ensure disinflationary trends ahead. We continue to expect prolonged pause by the MPC, with liquidity tools being more closely if necessary to manage the policy stance.”

“From the RBI Governor’s comments, it can be inferred that the MPC has drawn some comfort on the fact that there has been broad-based easing in core inflation, which also indicates that the RBI monetary policy action has been bearing results of successful disinflation. The Governor though has expressed concern on potential inflation risk which can emanate from food inflation which can lead to an uptick in inflation numbers of November and December.

The tone of the MPC seemed to be well-balanced between controlling inflation on the one hand and retaining the focus on it, while at the same time cautioning against the risk of over-tightening measures that may arise. From the Governor’s statement, we feel that RBI MPC will pause on the rate front up to H1FY25, focussing on liquidity measurement management to ensure liquidity remains neutral to tight in the near term to align to policy stance.”

– Ajit Banerjee, Chief Investment Officer, Shriram Life Insurance

“RBI’s decision to maintain the status quo on key rates and the unanimous stance of the Monetary Policy Committee (MPC) reflects the central bank’s commitment to balance growth and inflation dynamics. Biz2X welcomes the RBI’s proactiveness while projecting a robust GDP growth of 7% for FY24, up from the earlier estimate of 6.5%. The central bank’s optimism is well-founded, considering factors such as heightened public sector capex, strong manufacturing capacity utilisation, and resilient domestic demand. Despite global economic uncertainties, the RBI’s decision to keep the repo rate unchanged at 6.5% sends a positive signal to businesses and lenders. This stability provides a conducive environment for enhanced loan management, servicing, risk analytics, and a configurable customer journey, areas where Biz2X is making a significant impact. The upward revision of the GDP forecast and the focus on the withdrawal of accommodation sets the stage for a collaborative journey towards sustainable economic growth.”

“MPC has delivered a ‘Neutral Policy with a positive undertone ‘and has been more upbeat on growth by nudging the forecasts higher, while yet being cognizant and cautious on achieving their medium-term inflation target. The upgrade in GDP growth rate to 7%, while maintaining inflation forecast renders key optimism in the policy and provides the requisite comfort to markets. Overall, MPC has explicitly signalled that the overarching approach continues to be that of policy stability and would eliminate any suddenness and surprises by being nimble amidst the dynamic global and domestic landscape.”

“The high interest rates prevailing now make a case for increasing allocation to debt in the portfolio to mitigate any material correction in the Equity portfolio. Investors should remain agile in their investments considering regulators have become vary of excesses forming in the financial space – both lending and investing. While growth is not expected to be a cause of concern, inflation is. Despite cooling off in the last couple of months and within acceptable limits, it is still higher than the MPC mandated target of 4%.

The RBI is extremely clear and rightly so has a disinflationary stand. As per RBI projections, the headline CPI will come down to 4% only in Q2FY24. Inflation will need to be around 4% on a durable basis for RBI to consider cutting rates. Considering this, any rate cut before Q3FY24 seems unlikely.

It’s time to be ‘cautiously optimistic’! India is a bright spot among the faltering global economic backdrop. Growth numbers have been strong led by festive sales and rural demand showing some turnaround.”

“Citing the progress that has been achieved in bringing down inflation, the RBI MPC kept the policy rate unchanged at 6.5%. However, commentary remained hawkish as the governor highlighted risks from higher food prices. Vegetable and pulses prices remain a key risk. High frequency indicators suggest food inflation could inch higher in November and December. While the committee can look through such transitory shocks, it remains vigilant on their second order effects in terms of such shocks feeding into inflationary expectations. Volatility in crude oil prices also remains a risk. Growth momentum remains robust. While urban demand has been resilient, rural demand is making a comeback. Corporate investment activity has picked up pace this year. Given that capacity utilizations have moved above average levels and leverage remains low, capex momentum is likely to continue.

Given the positive backdrop, RBI revised FY 2024 growth estimate to 7% YoY. However, this also suggests that core inflation could remain sticky for longer. The RBI kept inflation projection for FY 2024 at 5.4%. The 4% target is expected to be achieved only by Q2 FY 2025. On liquidity front, the central bank maintained its stance of withdrawal of accommodation. However, compared to the October meeting, significant progress has been achieved due to higher currency leakage during the festive season, higher government expenditure and RBI open market operations. This warrants low intervention from the central bank going ahead. To allow for better liquidity management, the central bank has allowed reversal of MSF and SDF facilities even on holidays and weekends. The move will come into effect from 30th Dec 2023 and will be reviewed in six months or earlier if needed.”

“It’s a very prudent move to not change the policy stance when the steps taken in the past are still being absorbed. The move to create a fintech repository and increasing limits of UPI for specified categories helps growth and shows the increasing confidence of the regulator in the UPI framework. Reversal of SDF and MSF on holidays shows the regulator’s intent to manage and keep liquidity efficient for the bank.”

“As anticipated, the RBI continues to keep the repo rate at 6.5%. However, the Indian real estate industry and the economy at large would have greatly benefitted from a rate cut, given that current macro-economic parameters are favourable and the rate has been maintained at 6.5% for the last 3 quarters. This move will keep home loan rates and the cost of buying a house on the higher side for consumers and we hope that it does not disrupt homebuyers’ sentiments. With inflation relatively in check, economy growing at a faster than expected pace, reasonably good monsoon, RBI could have opted for a rate cut that would have provided the ideal opportunity to accelerate housing momentum and overall consumer spending, not just positively impacting growth of real estate but other sectors too.”

– Boman Irani, President, CREDAI National

“With the fundamentals of the Indian economy remaining strong and the recently announced GDP rates indicating positive outlook, the RBI once again decided to keep the repo rates unchanged. This is an extension of the festive bonanza that RBI gave to the homebuyers in its last policy announcement. It gives homebuyers yet another opportunity to make cost-optimized home purchases. Going forward, we may expect the momentum in housing sales to continue in the wake of the unchanged repo rates coupled with the resultant stable home loan rates and positive economic outlook on India.”

– Anuj Puri, Chairman, ANAROCK Group

“The pause in policy rate augurs well for the residential real estate sector. The economy is looking robust with high investments across businesses in recent times. A recovery in property prices and rise in yields has made investment in residential properties attractive yet again and has been responsible for continued demand in the sector.

Going forward, there can be further uptick in demand with reduction in rates, making it even more enticing for prospective homebuyers and bolster overall market confidence. We are also expecting significant growth in the near future, building on the success of this year and the continued strong demand in the real estate sector driven primarily by burgeoning aspirations. We will continue to see a multi-fold growth in real estate investments since the real estate market is less volatile than other investment markets and delivers higher returns. Overall, consumers are keen to buy homes as stability and security is on top of their mind now and the recent past has been testament to the fact that home buyer confidence is at an all-time high.”

– Ramani Sastri, Chairman and MD, Sterling Developers

“Given the robust economic growth and manageable inflation, RBI has maintained the status quo keeping the repo rate unchanged at 6.5% for the fifth consecutive time, with a focus on withdrawal of accommodation. Since the concerns about inflation persist, and there are still risks to the economy, RBI has taken a cautious outlook. This is masked by risks to food inflation, which might lead to an inflation uptick in the near term, though RBI FY24 inflation forecast remains unchanged at 5.4%. The stance aligns with market expectations.

The anticipated growth for India‘s economy in FY24 is now set at 7 percent, with projections of 6.5 percent and 6 percent for the third and fourth quarters, respectively, maintaining India’s position as the world’s fastest-growing major economy.

Moving forward, food inflation needs to be monitored as we may likely see some impact of elevated global sugar prices and key vegetables, as headline inflation remains volatile.”

“The policy status quo was in line with expectations. The upward revision in GDP growth estimates would mean continued momentum in equities as well as interest rate sensitives. RBI has not sounded as hawkish as markets expected, hence bond yields may ease a tad. However given India’s CPI data and impending US FOMC decision, upside in prices may be limited. Rates seem to have peaked out and hence rise in yields could be an opportune time to add duration to one’s portfolio.”

“On the interest rate trajectory, we see RBI closely following the trails of global central banks. If the probability of an early interest rate cut by the Fed materializes, we think that the RBI will follow suit. Interest rate futures are pricing a 60% probability of a Fed rate cut as early as March 2024 and an 80% probability of a rate cut in May 2024. Optically, RBI may attribute domestic inflation as the major determinant of the policy rate, but we infer that the central bank is also largely influenced by the interest rate dynamics in the US and Europe given its wider impact on the currency, trade, and foreign capital flows. Given that there is a clear consensus of a reversal of the monetary policy action by the Fed and if it cuts interest rates in March, we fancy a rate cut by the RBI in April, when compared with the consensus of a cut in Q2 FY25.”

– Hitesh Jain, Strategist- Institutional Equities Research, YES Securities India Limited

“No significant surprise in the RBI’s decision to persist with existing policy rates. Although the stance remains ‘withdrawal of accommodation’, the RBI governor also cautioned against the ‘risk of over-tightening’, which is implicitly a more balanced stance. The MPC remains focused on bringing headline CPI inflation towards 4% YoY, and particularly vigilant about the risk of a renewed spurt in vegetable inflation in Nov-Dec’23. We are more optimistic about growth (we were forecasting 7.2% growth for FY24 from the start of the fiscal year, revised it up to 7.6% in Oct’23, and recently revised that up to 7.9% this month after the release of the Q2FY24 real GDP growth numbers), so we welcome the upward revision of the RBI’s forecast for FY24 to 7%.”

“The RBI consistently, and as also in previous policies, harped on the volatilities to price stability from the food side. The governor warns that the RBI would unlikely lower its guard on inflation and one or two months of positive data on inflation does not, therefore, allow them to change the course of monetary policy. The problem for the RBI is that inflation continues to refuse to come down towards the 4% target and the earliest that it may do so, as per the RBI’s own projections is in Q2 of the next financial year. Thus, it may be safe to say, and keeping in mind the credibility of the central banker, there is unlikely to be any chance of a rate cut till that time, unless of-course something dramatically changes. The RBI sounds out again the issue of financial stability and the importance of the same. This explains the recent actions of the RBI towards increasing risk weights of some categories of the personal loan. While liquidity has taken center-stage in terms of policy announcements over the past two policies, there were no fresh announcements today on the liquidity front. Further, tensions on an imminent OMO was taken off and may be used only if liquidity flows turn out to be humongous in light of the bond market inclusion related flows.”

“As expected, the Reserve Bank of India’s Monetary Policy Committee has kept the repo rate unchanged. This is the fifth consecutive time that the central bank has kept the rate unchanged as GDP growth continues to gain momentum and all economic indicators point towards a robust growth in the economy. Inflation too has been reined in and with signs of recovery in rural demand, manufacturing and infrastructure sectors too are showing healthy signs of recovery during the financial year. The central bank has also taken timely measures to control the unbridled growth of unsecured lending.”

“The rate pause by RBI is on expected lines. Rate increases over the last 1.5 years have been absorbed well without any impact on buyer interest, which remains very robust. And this pause will further help sustain the momentum. The GDP growth at 7.6% for Q3 was a positive surprise, but it was largely led by government consumption and capex. This pause may also help with private consumption and capex, which will be helpful for the economy especially as we will likely see a deceleration in government capex next year due to elections.”

– Ashish Khandelia, Founder, Certus Capital and Earnnest.me

“Unsurprisingly, the Monetary Policy Committee of the Reserve Bank of India (RBI) maintained the status quo on rates and stance. The RBI’s GDP growth forecast for this fiscal was revised up to 7.0% from 6.5% in view of the better-than-expected rise in the July-September quarter. Although the repo rate has been left unchanged, there could be de facto tightening as the RBI may continue to use liquidity compression as and when needed to speed up transmission and rely on macro prudential measures to manage risks to financial stability. The recently raised risk weights for unsecured, credit card and non-bank lending will crank up capital requirements of financiers and put pressure on lending rates. Additional announcements today for connected lending and digital lending underscores RBI’s vigil on buoyant credit growth. This fiscal began with a pause on rates and stance and will end the same way. We expect rate cuts only in the first quarter of the next fiscal.”

– Dharmakirti Joshi, Chief Economist, CRISIL