RBI MPC: Here’s what experts have to say on the latest announcements by Das and his team

The Reserve Bank of India on Wednesday raised its key repo rate by a quarter percentage point as expected but surprised markets by opening the door for more tightening, saying core inflation remained high.

The central bank said its policy stance remains focused on withdrawing housing, with four out of six members voting in favor of that position.

Here’s what experts have to say after the latest hike in key repo rate by RBI:

The credit policy of RBI is on expected lines. Key indicators showing stability. A growth of 7% for the current year and 6.4% for FY24. Inflation is also coming within range and at 6.5% for the current year and 5.3% in FY24. The position is better on both the currency performance and FX reserves front. The overall policy is in line with market expectations Kamlesh Shah, President, ANMI.

“Today’s hike of 25 basis points by the Reserve Bank of India is in line with consensus expectations. However, we felt that this time the probability of rate stagnation was at least 50%. On the inflation front, a major moderation in India after April 2022 was the main reason for us to expect a pause in this policy. On the contrary, it seems that the Reserve Bank of India is more concerned about high and stable core inflation for more than a year. More importantly, the successive rate hikes by the Bank of England, ECB and the US Federal Reserve and their impact on the forex market influenced the Reserve Bank of India’s decision to hike another rate. Unless there is an unexpected spike in inflation, we would expect the Reserve Bank of India to keep the policy rate unchanged for the remainder of 2023. This will be positive for both debt and equity markets.” Sujan Hazra, Chief Economist & Executive Director, Anand Rathi Shares & Stock Brokers Reasons for the increase.

On expected lines, the RBI has gone for a small dose of 25 basis points increase in the repo rate, keeping in view the moderation of inflation but need for continued vigilance on core inflation.

The overall stance has been maintained and has not yet shifted to neutral, indicating RBI’s approach to take calibrated steps to address challenges in the growth versus inflation metrics. CPAI President Narendra Wadhwa.

Ongoing uncertainties and a volatile global scenario have prompted the RBI to revise down its GDP growth forecast for next year to 6.4%, which though is still comparable with peers. The stock market is expected to respond positively to the measures announced by the Reserve Bank of India, with the economy’s inherent resilience being at the forefront. RBI has also announced measures to widen the government securities market by amending the mechanism for lending and borrowing of government securities which will provide depth to the market and facilitate government borrowing for the next financial year. The banking sector is also expected to respond positively with positive credit growth and positive real interest rate to depositors. Overall, a pragmatic approach was adopted by the RBI with the intention of immediate attention to inflation while supporting growth over the medium term. Jyoti Prakash Gadia, Managing Director, Resurgent India.

RBI-MPC voted to increase the repo rate by 25 basis points to 6.5 per cent, this appears to be the final rate hike in the coming days to keep inflation under control, which is targeted for 4% in 2024, we The later part of the year may see a reduction in the rate. There can be an atmosphere of happiness in the capital market

RBI has decided to hike the repo rates by 25 basis points in the February meeting and now the repo rate stands at 6.5% which is in line with street expectations. Since May last year, the RBI has increased the repo rate by 250 bps to bring down inflation to the target level. The possibility of a soft landing in the US has increased, while commodity prices have softened from the peak and now the base effect has also moderated inflation. India will continue to grow domestically at a robust pace of around 6.5%, while inflation will be below the upper limit of the RBI tolerance band of 6%. Now that we are at the peak of the interest rate hike cycle, we will see some slowdown in discretionary consumption as interest rate hikes begin to take effect. Unless we get into the cycle of interest rate cuts, the slowdown in demand will be a challenge for the next two to three quarters. From then on we will see a moderation in inflation, as well as an increase in demand to bring the consumption industry back on track. In the near term, changes in personal tax rates and budgetary stimulus on account of good rabi sowing will support rural and urban consumption, while the government’s focus on capex will sustain infrastructure development in the economy. The RBI commentary and announcement are mostly in line with street expectations and thus we do not see any material impact on the economy from RBI’s rate hike decision. Inflation is expected to be around 5.3% in FY24, while real GDP growth is expected to be around 6.4%, thus the repo rate is expected to peak at around 6.7% for this rate hike cycle.

The momentum of the market depends on how much the rate has increased relative to expectations. Surprises typically accompany market volatility; However, RBI hiked rates by 25 bps as per market expectations. When interest rates rise, it affects both the economy and the stock market because borrowing becomes more expensive for individuals and businesses, which affects all sectors. Higher interest rates mean lower terminal value because the discount rate used for future cash flows is higher.

The financial sector has historically been the most sensitive to changes in interest rates. Typically, during a rising interest rate scenario, the banking sector hikes rates through floating rate loans, while delaying rate hikes for deposits, benefiting from spreads, and expanding margins. Banks posted strong revenue growth on the back of strong earnings growth driven by healthy disbursements, high loan rates and promising advances. A change in stance by RBI going forward will lead to a rally in the banking sector, while a prolonged accommodative stance will impact deposit rates and help bring down NIMs, especially for PSBs. Overall, the economy looks to be in good shape and a peak rate of 6.7% is not an unusually high number for domestic markets, thus we do not see any material impact on the stock market but second order consumption impact which we will be watching closely. looking, especially on the consumption side, said Anil Rego – Founder and Fund Manager, Right Horizons PMS.

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