RBI Monetary Policy Repo Rate Highlights: The Reserve Bank of India (RBI) announced its fourth bi-monthly monetary policy today. The three-day meeting, headed by Governor Shaktikanta Das began on October 4. The central bank decided to keep the repo rate unchanged at 6.50 per cent and stance of ‘withdrawal of accommodation. The RBI governor said, “After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, RBI’s Monetary Policy Committee decided unanimously to keep the Policy Repo Rate unchanged at 6.5 per cent.”
“Macroeconomic stability and inclusive growth are the fundamental principles underlying our country’s progress. The policy mix that we have pursued during recent years of multiple and unparalleled shocks has fostered macroeconomic and financial stability,” he said.
During the last MPC announcement, the Monetary Policy Committee had decided to keep the key policy repo rate unchanged at 6.5 percent, maintaining the status quo for the third time in a row. This is the fourth time that the MPC has decided to keep the benchmark repo rate unchanged.
RBI Monetary Policy October 2023 Highlights
"The RBI MPC has decided to maintain the status quo on the repo rate, aligning with expectations. Considering that the transmission of the rate hikes hasn’t been fully passed on, it was a prudent decision to adopt a wait-and-watch approach. Inflation management remains a focal point for the central bank, with a clear indication that the MPC will intervene if necessary to prevent any spillover effect from food or oil price inflation. Given the broad-based credit growth and the relatively favourable state of the Indian economy compared to the global economy, banks will continue to pursue retail deposits."
“The Reserve Bank of India has maintained status quo on policy rates at the just concluded Monetary Policy Committee meeting as inflation persists above the targeted rate, uneven rainfall is likely to affect agri supply ahead of the onset of festive season. Globally, the US Fed persists with its hawkish stance even as oil prices have retreated. The 10-year government bond yield is likely to rise as the central bank has said it will consider Open Market Operations (OMO) sales to manage liquidity in the system. ICRA Analytics foresees the 10Y benchmark yield to trade between 7.25-7.40% in the near term."
“One of the major concerns with the current macro situation is to maintain the right balance of liquidity and inflation in the system, without compromising the growth engines of the economy. Jul- Sep inflation is seen at 6.4% vs earlier projected 6.2% with FY24 projection at 5.4%. These figures still show uncertainties due to dependency on food prices, monsoons and crude prices. All the major central banks of the world have retained their rates in their latest decisions except for ECB which hiked the rates by 25 bps but indicated rates might be peaking out. Indian equity and debt markets will now be anchored by economic data around the world and majorly US Fed commentary has been crucial over the past few months with the Fed chair sounding resilient to tame the inflation even if it demands increasing rate further. In the current week, labor market data dictated both US markets as well as Asian markets including India. Markets are actively looking for cues for the trajectory of future interest rates. It will be a wait and watch for both central banks as well as the markets."
“Overall, the policy had a hawkish undertone to it. The governor sounded cautious about inflation even though the full-year inflation projection was unchanged. It is to be noted that the governor reiterated the RBI’s commitment to bring CPI inflation down to 4% target. The RBI kept the GDP growth projection for FY24 untouched as they await additional data points to comprehensively assess the evolving dynamics.
Furthermore, the RBI remains watchful of the liquidity conditions and wants to ensure no build-up of surplus liquidity. Hence the governor announced that RBI would consider open market operation (OMO) sale of government securities to mop up excess liquidity as required. We expect the RBI to start its rate-cutting journey from the second quarter of next fiscal year as inflation edges closer to 4% target.”
“RBI has not bucked under pressure to tinker with repo rate post the taken a brave stance despite the US Fed retaining a hawkish stance. RBI Governor sounded more cautious against rapid growth in unsecured loans in banks and NBFC. Also, it seems RBI would like to keep liquidity tight, so the benchmark yields may inch up further. However, the financial stocks have not reacted negatively as it retained the inflation forecast as of now.”
“Status quo on repo rate by RBI will boost economic activity and strengthen economic growth. We are pleased to see that, despite declining global growth, our economy grows more than 7% every year during the post pandemic years. Declining CPI inflation, enhanced domestic demand, manageable external sector and twin balance sheet advantages will act as a boost to India’s growth. This is the time to remain vigil, and prepare for policy accommodations. Momentum in the agriculture sector especially during the 2Q of FY 2023-24, recovery of the industrial sector, momentous investment activity with government capex support, buoyant service sector are leading to a resilient domestic growth. We envisage further support from the government and the RBI to keep the economy growing.”
- Sanjeev Agrawal, President, PHD Chamber of Commerce and Industry
“RBI kept the repo rate unchanged and maintained ‘withdrawal of accommodation stance’ in line with market expectation. Q1FY25 inflation pegged at 5.20% suggesting RBI is in a long pause. However the negative surprise came from possible RBI ‘OMO sales’ to suck out liquidity from the system. This has led to a spike in bond yield by 5-10 bps.”
We will watch evolving trends on liquidity and notify OMO as and when it becomes necessary, do not propose to announce any OMO calendar at the moment, said RBI Governor.
“A steady repo rate of 6.5% since February, has been providing relief for EMI dependent homebuyers, especially in these times of elevated inflation levels. With developers likely to bring in festive offerings in the next few months, a stable financing environment will drive housing sales across categories. Overall festive tailwinds, accommodative stance of RBI and ongoing freebies offered by various financial institutions and developers, will keep the momentum in the residential segment strong for an upbeat 2023. Fence sitters and first-time homebuyers are likely to remain highly active across residential hotspots of major Indian cities.”
“The RBI's choice to keep the repo rate unchanged suggests that lending rates are likely to remain stable in the immediate future. This is certainly good news for borrowers, including those with home loans or personal loans. However, it's worth noting that banks may not pass on the entirety of the rate pause benefits to borrowers.
For depositors, the RBI's decision is also favorable, as it implies that interest rates on fixed deposits will likely remain relatively high. Nevertheless, investors should be prepared for a gradual decrease in fixed deposit interest rates in the months ahead as the RBI embarks on its monetary policy easing journey.
In summary, the RBI's decision to keep the repo rate unchanged is a positive development for both borrowers and depositors. However, it's important to remain vigilant, as the central bank's policy stance may evolve in response to changing economic conditions in the future.”
“RBI's decision to hold the repo rate steady at 6.5% showcases a strategic and balanced approach to India's economic trajectory. For fintech companies like ours, this not only provides a predictable environment but also signals a conducive atmosphere for sustained growth. It's a clear indication that the regulators are in sync with market dynamics, paving the way for fintechs in India to innovate, expand, and contribute more significantly to the nation's financial inclusivity."
“Unsurprisingly, the RBI’s MPC decided to keep its policy rate unchanged at 6.5% and retained its stance of ‘withdrawal of accommodation’. The key change is a much more benign inflation forecast, suggesting that the RBI expects CPI inflation to abate to well below 6% YoY in Sep’23, and to stay at 5.6% YoY in Oct-Dec’23 and 5.2% YoY in Jan-Mar’24. We continue to expect the next policy move to be a rate cut in Q1FY25.”
“It is indeed a turning pitch as far as inflation is concerned for RBI but on the other side global market forces are scaring all the central bankers on higher bond yields, which are getting stronger by the day. The current pause wouldn’t last long, for that matter, for any central banks. The rates are likely to move higher before the actual pivot happening sometime in the middle of the next year. So, equities will have serious competition from bonds going forward.”
- Umesh Kumar Mehta, Chief Investment Officer, SAMCO Mutual Fund
"Monetary Policy Committee (MPC) kept rates and stance unchanged, hinting at a longish pause with a word of caution due to the state of the global economy. As previously pointed out, MPC's target inflation of 4% was explicitly mentioned yet again. MPC will remain data dependent and incremental actions by way of liquidity measures continue to be our base case. The 10 year bond is expected to settle slightly higher in the range of 7.15% to 7.35% following RBI's hint of OMO sales as the next liquidity tool after ICRR."
"As repeatedly predicted by us on Sept. 16, Sept. 25, Sept. 29, Oct. 2 & Oct.3, the RBI kept both the policy rates & stance unchanged in the Monetary Policy. Right policy in view of the evolving growth-inflation dynamics," said Dr. Manoranjan Sharma, Chief Economist, Infomerics Ratings.
Anuj Puri, Chairman, ANAROCK Group, said, “The unchanged repo rate is a festive bonanza for homebuyers and gives them yet another opportunity to make cost-optimized home purchases. If we consider the present trends, the overall consumer market looks bullish across sectors, particularly the automobile and housing markets, which in many ways reflect the health of the economy. We are entering the festive quarter with a very strong momentum in housing sales, and unchanged interest rates will act as a major catalyst for growth in the residential market. Thanks to the stable repo rate and the resultantly stable home loan interest rates, we can expect the momentum to continue.”
“The RBI’s status quo on the key policy rates is on expected lines. Softening core inflation, improved asset quality in the financial sector and robust earnings growth are signs of positive economic momentum. The upcoming festive season is expected to further drive economic activity across segments -- from real estate and FMCG to automobiles, etc. We also anticipate a substantial number of homebuyers to finalise their decisions during the festive season, taking advantage of the repo-rate pause and any developer incentives.”
“Continuation of pause in the repo rate was much needed albeit looming inflationary pressure arising from – rising crude prices and rupee depreciation. By pausing the policy rate, the central bank continues to maintain its focus on economic growth, which is facing headwinds primarily from external factors, such as slowdown in global growth, high energy prices and geopolitical tensions; and remains cautious of inflationary pressure as well.
Measures to reduce excess liquidity and improve transmission of earlier policy rate hike measures align with price stability goals of the central bank. The decision will continue to maintain the existing momentum of residential real estate demand in India. The stance today should be considered as a big relief for the housing sector of the country which has shown tremendous strength in the face of headwinds over the last year.”
"On a positive note, interest rates haven't increased as anticipated, however they are expected to remain elevated for an extended period. This will have an implication on rate-sensitive sectors like banking, auto, core industries, and heavy-weighted balance sheet companies. The elevated global bond yields and appreciation of the US dollar will affect the domestic economy and capital flows. However, it should not have a deep overhang effect on the economy but rather a mixed bias in the short term. The inclusion of government securities in the global bond index and moderation in inflation, like food & international commodity prices, will support INR and domestic corporate profit even in a volatile global currency market."
“The RBI had overlooked data in the early aftermath of COVID since the aim was to stimulate the economy and engineer a turn-around. Since changing its stance last year, the RBI has been data driven. According to the RBI's inflation prediction for Q3 and this FY, today's policy outcome is not surprising. We expect the RBI to retain the status quo unless we see a durable drop in inflation and if steady economic activity continues."
“RBI's stance of maintaining the repo rate at 6.5% is another cautious step to keep inflation in check, as well as to sustain current levels of consumer spending and economic growth. This move will help maintain the momentum in housing sales during the festive season coming up, with many investors and fence sitters expected to come to the fore. We however reiterate the crucial need of a rate cut in the next MPC meet as current interest rates have been the highest among the last few years, that need to be brought down - a move which can act as a critical growth driver in spending and fuelling demand across sectors.”
“It’s a déjà vu at RBI MPC to stay status quo on key benchmark rates. There is a sense of caution visible due to inflation rising tending to act as a major macro headwind. The RBI acknowledged slowdown in growth parameters, yet India remains an oasis in the desert and our GDP growth estimates have been retained at 6.5%. Headline CPI forecast has been retained at 5.4%, which was on expected lines. We do expect downward movement in CPI in the coming months, hence bond markets may get some breather over the medium term as some section of markets was expecting upward revision. No new announcements on the liquidity front may offer some solace to the short end of the yield curve to remain anchored. OMO sales may be undertaken if need be, but that is something markets are used to, but with auction and OMO sales not meeting with commensurate demand, bond yields could stay elevated near term.”
- Lakshmi Iyer, CEO-Investment & Strategy, Kotak Alternate Asset Managers Limited
“We are far from reaching the inflation target of 4%. Theoretically there should have been a rate hike but when you take a more nuanced approach, status quo is the smarter thing to do. India is facing some challenges, both internal and external. Kharif crop are being sowed and reservoir water levels are low, the monsoons are about to end and a lack of water leads to uncertain farm income during Basant Panchami next year. On the international stage, oil prices are volatile and $9 higher on average than last quarter. The rupee is the lowest it has ever been. Considering these, on the backdrop of high GDP growth, the status quo on repo rate is absolutely logical.”
- Suman Bannerjee, CIO, Hedonova
“The MPC of the RBI decided unanimously to keep the policy repo rate unchanged at 6.50%, third time on the trot. The committee took comfort from falling core CPI inflation, and decided to persist with existing tightness of monetary policy to guide headline inflation to its 4% target. While the committee retained its FY24 CPI inflation projection at 5.4%, it continues to remain vigilant about the volatile food and energy prices. On the liquidity front, the Governor hinted at the possibility of using OMO sale operation, if required. Hence, while the policy outcome was largely in line with expectations, the possibility of OMO sale operations by the RBI will keep bond bulls in check till further clarity emerges. We expect the 10-year benchmark government bond to trade in the 7.15%-7.35% band in the near term.”
With a view to strengthen the extant regulatory framework governing project finance and to harmonise the instructions across all regulated entities, the extant prudential norms for projects under implementation have been reviewed, Shaktikanta Das said. A comprehensive regulatory framework applicable for all regulated entities is now proposed to be issued. Detailed draft guidelines will be released for public comments, he added.
Payments Infrastructure Development Fund scheme, the RBI governor said, has been extended by 2 years. The coverage is expanded to include PM Vishwakarma scheme beneficiaries, he said.
Given the growing acceptance and benefits of tokenisation of card data, it is now proposed to introduce Card-on-File Tokenisation (CoFT) creation facilities directly at the issuer bank level. This measure will enhance convenience for cardholders to get tokens created and linked to their existing accounts with various e-commerce applications, RBI Governor Das said.
The RBI Governor said, “It has been decided to increase the existing limit for gold loans under the Bullet Repayment scheme from Rs 2 lakh to Rs 4 lakh in respect of Urban Co-operative Banks (UCBs) who have met the overall target and sub-targets under the Priority Sector Lending (PSL) as on March 31, 2023.”
India’s foreign exchange reserves stood at $586.9 billion as on September 29, 2023. “We remain confident of meeting our external financing requirements comfortably,” said RBI Governor Shaktikanta Das.
On external financing, foreign portfolio investment (FPI) flows have seen a significant turnaround in 2023-24 with net FPI inflows at $20.3 billion up to September 2023 as against net outflows in the preceding two years. Net foreign direct investment (FDI), on the other hand, moderated to $5.8 billion in April-July 2023 from $17.3 billion a year ago.
RBI Monetary Policy October 2023 Highlights