After RBI MPC announced its decision to keep the key policy repo rate unchanged at 6.5 percent, maintaining status quo for the third time in a row, economists and experts said that the central bank is expected to remain on a prolonged pause given the aim to revert inflation to 4 per cent target. “We continue to believe that the RBI will remain on a prolonged pause given the aim to revert inflation to 4 per cent target while inflation remains around the 5 per cent handle for now, second it will watch for durability of the recent price increases and impact on inflation expectations, and third it will gauge the impact of 250 bps of rate hike on growth-Inflation dynamics,” said Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities.
“The high policy rates will remain high for long and, therefore, a rate cut can be expected only in Q1FY25. From the market perspective, there are no positive or negative surprises in the policy,” said Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
The MPC, on Thursday, voted in 5:1 majority to maintain the ‘withdrawal of accommodation’ stance to ensure that inflation progressively aligns with the target, while supporting growth. “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,” said Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE.
Here is how economists and experts are reacting to the RBI MPC announcements and their expectations for future policy stance.
Lakshmi Iyer, CEO – Investment & Strategy, Kotak Alternate Asset Managers Limited
While status quo on rates wasn’t much of debate, the key thing to watch out for was the tone of the MPC guidance. Here, the RBI seems to sound cautious and ready to act as and when the situation warrants, but not as hawkish as the markets would have expected. It also suggests that much of the possible negative outcomes were already in bond prices. CPI forecast for FY 24 has been revised upward to 5.4%, which again was largely priced in.
Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities
The RBI, as expected, has maintained policy rate and stance. We see some upside risk to the RBI’s inflation forecast of 2QFY24 though we are in line with the FY2024 inflation estimate of 5.4 per cent. We continue to believe that the RBI will remain on a prolonged pause given the aim to revert inflation to 4 per cent target while inflation remains around the 5 per cent handle for now, second it will watch for durability of the recent price increases and impact on inflation expectations, and third it will gauge the impact of 250 bps of rate hike on growth-Inflation dynamics.
Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE
We welcome RBI’s decision to keep the repo rate unchanged. The move is expected to bring cheer to the housing sector, given the high-interest rate cycle that has been prevalent since last year’s consecutive rate hikes. The pause in rate hike will strike the right equilibrium between growth, simultaneously containing inflation and managing external volatilities.
Ranen Banerjee, Partner, Economic Advisory Services, PwC India
The good news is that the core inflation is not trending higher. The economic growth rate has been projected to 6.5 per cent given the recent strong prints in the high frequency indicators. The statements from the Governor though have conveyed the enhanced risks to growth and inflation and we can therefore take comfort that besides the withdrawal of accommodation stance being continued, we can expect the continued pause for the next MPC meeting too.
Gaurav Dua, Head Capital Market Strategy, Sharekhan by BNP Paribas
RBI policy announcements are largely in line with market expectations. Policy rates are unchanged but the commentary is hawkish given the rising vegetable and food prices and global uncertainties. Hence, the RBI has taken temporary steps to withdraw some excess liquidity from the banking system. Also, RBI hinted that the high-interest rates could prevail for a longer period of time.
Dharmakirti Joshi, Chief Economist, CRISIL
The spike in vegetable inflation is a recurrent, and often transient, phenomenon and the central bank can afford to look through it. But high foodgrain inflation, amid threat from weather and global developments, is difficult to ignore, given its higher weight in the CPI basket. Although repo rate hikes cannot directly impact supply-side driven food inflation, it becomes a concern if it sustains and spills over to other components, and steers headline inflation away from the goal. So fingers crossed on this. A 25 bps rate cut in the January-March 2024 quarter is, therefore, a conditional possibility for now.
Radhavi Deshpande, President & Chief Investment Officer, Kotak Mahindra Life Insurance Company
After rightly guiding the markets in the previous policy, MPC kept rates on hold for the third time in a row. MPC continues to highlight global economic challenges including high levels of debt while it takes comfort from the domestic stable core inflation and normalising supply pressures to keep the monetary policy framework unchanged. A mention of high current food inflation as transitory and considering a balanced demand-supply for bonds, comfortable fiscal and stable current account, we continue to expect a longish pause as our base case and bonds to stay range bound with yield curve steepening bias to stay.
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
The MPC has delivered in line with market expectations on rates, stance and tone, with retention of rates and stance and the tone turning hawkish. The significant change is the upward revision in FY24 CPI inflation projection from 5.1 per cent to 5.4 per cent. This means the high policy rates will remain high for long and, therefore, a rate cut can be expected only in Q1FY25. From the market perspective, there are no positive or negative surprises in the policy.
Boman Irani, President, CREDAI National
RBI’s stance of maintaining the repo rate at 6.5 per cent is a cautious step towards further controlling inflation in the long run. With the economy on track and driven by sustained demand across sectors, we at CREDAI reiterate our view that it will be beneficial for consumer sentiment if a repo rate cut is announced in the next MPC review. This will increase consumer spending in the festive season and fuel demand across sectors, boosting our Indian growth story.”
Shishir Baijal, Chairman & Managing Director, Knight Frank India
We are delighted that RBI has maintained the repo rate pause for the third consecutive instance. The choice to maintain the status quo is supported by strong economic conditions and the revised inflation forecast for FY24 falling within the central bank’s upper tolerance range of 6 per cent. However, the central bank remains watchful on inflationary expectations and is focused on bringing the inflation level to its 4 per cent target.
Deepak Agrawal, CIO- Fixed Income, Kotak Mahindra Asset Management Company
RBI prefers to be in “wait and watch” mode to check if the recent food price inflation is getting generalized and prefers to keep rates on hold and keep the monetary policy unchanged. FY24 inflation has been revised upward from 5.10 per cent to 5.4 per cent. Proactive government measures to curb food inflation should assist in keeping inflation lower. RBI is likely to stay on hold for the rest of CY2023.