RBI Monetary Policy: What are the subtle hints from the central bank? 10 experts parse MPC decisions
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept the repo rate unchanged at 6.5 per cent and maintained the policy stance of 'withdrawal of accommodation' on Friday, December 8.
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept the repo rate unchanged at 6.5 per cent and maintained the policy stance of 'withdrawal of accommodation' on Friday, December 8. The standing deposit facility (SDF) rate remains at 6.25 per cent and the marginal standing facility (MSF) rate and the bank rate at 6.75 per cent.
Besides, the RBI raised its real GDP growth projection for FY24 to 7 per cent from 6.5 per cent earlier with Q3 GDP at 6.5 per cent (against the estimates of 6 per cent earlier) and Q4 GDP at 6 per cent (against the estimates of 5.7 per cent earlier).
On the other hand, the RBI kept the inflation forecast unchanged as it projected Consumer Price Index (CPI)-based inflation, or retail inflation, at 5.4 per cent for FY24, with Q3 projection at 5.6 per cent and Q4 projection at 5.2 per cent.
RBI expressed that its fight against inflation will continue but it also said it will not damage economic growth giving a subtle hint that growth is also in RBI's focus.
Mint collated the views of 10 analysts on what they think about the RBI MPC's December meet outcome. Here's what they said:
Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS
While inflation estimates have been retained, near-term inflationary pressures primarily due to food inflation are expected to be visible. This development could make RBI maintain the status quo on rates in the upcoming meetings before considering rate cuts in the latter part of H1FY25.
With the recent move by the RBI to increase risk weights on personal and credit card loans, we expect credit growth to slow down in these segments. The retail and SME segment would lead to credit growth hereon. Pressures on margins for banks will continue. Currently, we prefer the larger banks versus the smaller/mid-sized peers.
Prasenjit Basu, Chief Economist, ICICI Securities
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.
We are more optimistic about growth (we were forecasting 7.2 per cent growth for FY24 from the start of the fiscal year, revised it up to 7.6 per cent in Oct’23, and recently revised that up to 7.9 per cent 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 per cent.
Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities
The MPC, which was broadly expected to be a no-surprise or shock event, actually gave a little mini-surprise hint to the market. The RBI Governor in the concluding part of his speech implied that it's not just inflation but also disinflation aka slower growth, which the RBI has its eyes on.
This coupled with the fact that there was no mention of OMO (open market operation) bond sales implies a significantly less hawkish tone by the RBI governor compared with their previous speeches.
The upward revision of FY24 GDP estimates by 50 basis points to 7 per cent and the unchanged FY24 CPI estimates at 5.4 per cent signal a robust and steady economic outlook.
Overall, the MPC decision appears favourable for the equity markets, providing an additional boost to the already soaring Indian equity markets.
Akhil Mittal, Senior Fund Manager, Tata Asset Management
As expected, the policy was a non-event with no change in rates or stance. Strong growth trends domestically and falling inflation have both been highlighted. Liquidity condition developments remain aligned with the policy stance and hence no OMO sales were required (as mentioned in the previous policy). RBI seems to be committed to achieving inflation targets while keeping a close watch on global financial market conditions.
With policy largely in line with expectations and no mention of OMO sales (which led to a sell-off in the last policy review), we expect markets to perform better and yields to come off 5-10 bps across the curve. Overall, at the margin, policy seems to be positive for markets.
Suresh Khatanhar, Deputy Managing Director, IDBI Bank
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.
Sanjay Agarwal, Founder, MD & CEO, AU Small Finance Bank
The decision of the status quo on Policy Rates and stance by MPC is as per our expectations and a welcome move. MPC's emphasis on keeping the Inflation target at 4 per cent, in the long run, demonstrates RBI’s commitment to supporting sustainable growth while maintaining financial stability.
Despite global headwinds, RBI has raised the GDP forecast to 7 per cent from 6.5 per cent for FY’24 demonstrating confidence in domestic growth levers. RBI would continue to remain watchful and ready to act on evolving domestic and global developments as warranted.
Gaurav Dua, Head – Capital Market Strategy, Sharekhan by BNP Paribas
Monetary policy was on the expected lines. The Monetary Policy Committee (MPC) kept its stance the same as withdrawal from accommodation to ensure taming inflation under target.
However, at the same time, RBI highlighted the risk of over-tightening in the backdrop of the global slowdown. This is despite the increase in GDP forecast to 7 per cent for FY2024 as compared to 6.5 per cent earlier.
Hence, it is more of a balanced view or neutral stance as compared to the inflation-focused commentary earlier.
We remain positive on equity markets in the near-to-medium term with real estate, banks, consumer and engineering/capital goods as preferred sectors.
Dharmakirti Joshi, Chief Economist, CRISIL
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 the capital requirements of financiers and put pressure on lending rates. Additional announcements today for connected lending and digital lending underscore 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.
Madhavi Arora, Lead Economist, Emkay Global Financial Services
The policy tone was comfortable, while MPC still insisted on keeping an eye on inflation, financial stability risk and active liquidity management.
The MPC continues to stress the policy stance has to stay actively disinflationary while supporting growth.
We maintain the RBI will stay vigilant, and it is unlikely to precede the Fed in any policy reversal in CY24.
Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers
As of now, the RBI anticipates that liquidity conditions will remain stable. The policy was, on the whole, less hawkish than had been anticipated.
Simultaneously, the governor issues specific warnings regarding premature adjustments to monetary policy rates and liquidity stance, which indicate that the rate pause and liquidity withdrawal stance may persist for a longer duration than initially expected.
We maintain our assessment that no rate reductions would occur until the latter part of fiscal year FY25. An upward adjustment to the GDP forecast would have a favourable effect on market sentiment.
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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Business NewsEconomyRBI Monetary Policy: What are the subtle hints from the central bank? 10 experts parse MPC decisions
First Published:8 Dec 2023, 12:02 PM IST
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