RBI Keeps Repo Rate Unchanged At 6.5%; Experts React

The highly anticipated announcement by the Reserve Bank of India (RBI) regarding the repo rate is finally out. In its decision, the central bank opted to maintain stability in its monetary policy, keeping the repo rate unchanged at 6.5 per cent and the standing deposit facility (SDF) rate at 6.25 per cent. The bank rates have also been left untouched at 6.75 per cent. 

RBI Governor Shaktikanta Das announced that the monetary policy committee (MPC) unanimously agreed to withdraw the accommodative stance in order to address inflation concerns. Alongside this decision, the RBI revised its retail inflation projections for the fiscal year 2023-24, now forecasting a rate of 5.1 per cent. 

Furthermore, the gross domestic product (GDP) growth forecast for the financial year (FY) 2024 is 6.5  per cent with projected growth rates of 8  per cent for Q1, 6.5  per cent for Q2, 6 per cent for Q3, and 5.7 per cent for Q4. 

Let’s see what the experts have to say about RBI's approach to monetary policy.

Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities said, "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. Also, 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."

Anant Singhania, President, IMC Chamber of Commerce and Industry said, “Amidst all positive growth outlook of Indian economy like endorsement of resilient Indian economy by multilateral bodies, Q4FY 2023 GDP growth above expectations, upbeat gross tax collections, thrust on capex, buoyant forex, inflation tapering, and the rural demand is expected to grow due to expected normal monsoon, the monetary policy was on expected lines.”

The GDP growth and inflation projections have been announced by RBI based on the assumption of a normal monsoon, which seems to be an area of uncertainty, highlighted Jyoti Prakash Gadia, Managing Director, Resurgent India. He added, “The actual position will pan subsequently and the kharif output will determine the price situation. Maintaining the GDP growth rate projection at the existing level of 6.5 per cent with a marginal reduction in inflation to 5.1 per cent may therefore undergo a change depending upon the actual circumstances. On the liquidity front, the nimble-footed action taken by RBI to absorb surplus liquidity is also supportive of the overall maintenance of stability in the market.”

Highlighting the areas where the government should remain vigilant, Arun Singh, Global Chief Economist, Dun & Bradstreet India said, “Going forward, RBI is expected to remain the pause on the policy rates in rest of the FY24. However, it is pertinent to remain vigilant against potential risks from an increase in crude oil prices, the probability of El Nino conditions creating droughts along with increased global financial instability and unfavourable geopolitical developments. This has the potential to alter the monetary policy roadmap.”

The FY24 growth rate projection is more on the optimistic spectrum band as the number of downside risks listed is quite many. Ranen Banerjee, Partner, Economic Advisory Services, PwC India said, “The stance has been kept as withdrawal of accommodation as that is the signalling the RBI wants for keeping the inflationary expectations anchored.  The projected growth rate for Q1 at 8 per cent in FY24 is likely to get tested despite the holding up of demand in the first two months of the year.”

The market had already factored in this policy, maintaining its bullish momentum. Santosh Meena, Head of Research, Swastika Investment stated, “The focus now shifts to global markets, upcoming US data, and Fed policy. The RBI policy is likely a non-event for the market. Technically, Nifty is trying to head towards its all-time high of 18888, where 18660 will be immediate support; below this, we can expect profit booking, where 18450 and 18180 will be the next support levels.”