RBI Holds Repo Rate Steady At 6.5%: Experts

Financial experts have weighed in on the Reserve Bank of India's (RBI) recent decision to maintain its policy repo rate at 6.5 per cent. Despite ongoing global uncertainties and concerns about rising inflation, the RBI's move has elicited various opinions from analysts and economists. These experts provide insights into the central bank's stance on inflation, growth projections and the overall economic outlook, shedding light on the reasoning behind the RBI's decision and its potential implications for India's financial landscape. Here are their insights and perspectives:

The status quo considering the volatility in global factors is a prudent call. The growth projection of 6.6 per cent along with incremental higher credit growth will keep pressure on banks for deposits. We hope a prudent balance in Open Market Operations (OMO) sales will keep the system liquidity adequate to keep the short-term rates down. Overall close watch on inflation and other high-frequency data will remain important.

Pralay Mondal, MD & CEO, CSB Bank

Unsurprisingly, the RBI’s Monetary Policy Committee (MPC) decided to keep its policy rate unchanged at 6.5 per cent and retained its stance of ‘withdrawal of accommodation’. The key change is a much more benign inflation forecast, suggesting that the RBI expects Consumer Price Index (CPI) inflation to abate to well below 6 per cent Year-over-year (YoY) in September 3 and to stay at 5.6 per cent YoY in Oct-Dec’23 and 5.2 per cent YoY in Jan-Mar’24. We continue to expect the next policy move to be a rate cut in Q1FY25.

Prasenjit Basu, Chief Economist, ICICI Securities

FY24 GDP growth rate remains unchanged at 6.5 per cent. Notably, RBI highlighted high inflation as the major risk to macro stability. The high inflation risk is emanating from volatile food and energy prices both domestically and globally, driven by geo-political factors and climate changes. While headline inflation is expected to moderate in the near term, RBI did cite that outlook uncertainty on food inflation comes from lower reservoir levels, lower sowing, and volatile global food and energy prices. The positive driver is that core inflation is softening and is critical for keeping the headline inflation lower.

Anitha Rangan, Economist, Equirus

The monetary policy statements in October 2023, as expected, maintained the status quo on all points. Contrary to common belief, the RBI did not lower its growth forecasts. According to the inflation projection, the RBI anticipates persistent headline inflation even in FY25. According to the RBI's inflation forecast, the real policy rate would be in the 100 to 150 basis point range in FY25. This is consistent with the central bank's preference. As a result, a rate cut in the next 12 months is exceedingly unlikely. On the plus side, the governor expressed strong confidence that India will maintain strong growth and that inflation will continue to fall, albeit slowly. These forecasts are encouraging for both the equity and debt markets in the medium term. However, the strong possibility of the RBI remaining on hold for an extended period, as well as the continuance of liquidity tightening, is bad for interest-sensitive industries.

Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers

On expected lines, the RBI has decided to keep the repo rate and the stance unchanged, with a cautious approach towards inflation which is still showing uncertainties. The global food and energy volatility in prices and monsoon-impacted kharif sowing is expected to continue the built-up of inflation pressure. As a result, RBI has decided to keep a wait-and-watch policy, before taking a further view on repo rate change.

The fact that the projected GDP growth rate and inflation rates have been kept unchanged indicates the resolve of RBI to be able to tame inflation with suitable action while supporting growth. The stock market is expected to show positive signs with the likelihood of fresh capital investments, both privately and through government expenditure.

In the matter of liquidity, RBI has rightly hinted at taking a careful approach with the intent to maintain balance through Open Market Operations in government securities, which is a tool available in the hands of RBI to immediately inject or suck out liquidity. The emphasis on maintaining stability in the financial markets, with efficient risk management by banks and NBFCs, is a step in the right direction to ensure long-term sustainable growth. Overall, a pragmatic policy announcement to maintain stability, aiming at sustainable growth.

Jyoti Prakash Gadia, Managing Director, Resurgent India  

The RBI Governor mentioned that the pitch is turning and we will play the ball on merit. Today's policy is like the Kapil Dev Policy. It will manage liquidity, inflation, growth, rupee and financial sector stability in an appropriate equilibrium like the legendary all-rounder Kapil Dev managed bowling, batting, fielding and captainship. The RBI has worked hard to create a balance between growth and inflation setting an example for the rest of the world. This policy continues to take that hard work forward.

Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company

The RBI's decision to maintain the status quo in its policy has been received positively by the market, despite growing concerns about rising inflation on a global scale. Nevertheless, the impact of this decision is expected to be limited, as the market's attention is anticipated to shift towards global market dynamics, notably the dollar index and US bond yields. Technically speaking, Nifty has managed to surpass the 50-day moving average (DMA), suggesting potential for a further recovery towards the 20-DMA level of 19,800. However, significant bullish momentum is projected to materialise only upon breaching the 19,800 mark.

Santosh Meena, Head of Research, Swastika Investmart