- MPC guidance turns out to be much more hawkish than expected : Mahendra Jajoo, CIO fixed income, Mirae Asset Investment Managers
- RBI governor emphatically reiterates that the Inflation target is 4% and not 2% to 6%: Puneet Pal, Head-Fixed Income, PGIM India Mutual Fund
- RBI indicates stable policy rates: K V Srinivasan, Executive Director and CEO, Profectus Capital Ltd
- The steady interest rate environment will help us in keeping our offerings competitive and affordable: Tribhuwan Adhikari, MD & CEO of LIC Housing Finance
- RBI decision sends a positive signal to the various constituents of the economy: Shilpa Pophale, Managing Director & CEO, Electronica Finance Limited
- RBI’s decision to maintain the repo rate aligns with our expectations: Aalesh Avlani, Founder and Director, Credit Wise Capital
NE BUSINESS BUREAU
MUMBAI/CHENNAI/NEW DELHI, OCT 6
The Reserve Bank of India has kept the key lending rate steady at its fourth consecutive policy meeting on Friday, as widely expected, but signalled it would keep liquidity tight using bond sales (OMO sales) to bring inflation closer to its 4% target.
The country’s monetary policy committee (MPC) kept the repo rate unchanged at 6.50%, in a unanimous decision.
The following were the reactions of various industry captains and economic experts. The excerpts:
MPC guidance turns out to be much more hawkish than expected
Mahendra Jajoo, CIO fixed income, Mirae Asset Investment Managers, commented “The MPC retained the prevailing key policy rates and only marginally tweaked the inflation projections. The guidance turned out to be much more hawkish than expected.
Emphasis on 4% being inflation target than 2-6% and the possible need for OMO sales point to the underlying concerns on deteriorating global environment. The positive flip side though is that as of now, the past policy actions seems to have eased core inflation and a harsh scenario may materialize only in case the global macro environment continues to turn adverse. In view of above, a slight uptick in longer term rates can be expected with the curve steepening somewhat as short term rates have already inched up in last few weeks.”
RBI governor emphatically reiterates that the Inflation target is 4% and not 2% to 6%
Puneet Pal, Head-Fixed Income, PGIM India Mutual Fund, said, “The MPC policy today was as hawkish as it could get even as the MPC kept the policy rate unchanged.
Flagging Inflation as still the “Major Risk,” the RBI governor emphatically reiterated that the Inflation target is 4% and not 2% to 6%. This along with the announcement that RBI will be nimble in managing liquidity by conducting OMO sales has spoked the bond markets and the benchmark 10yt yield has risen by 14bps to 7.35%. We expect the yield curve to steepen going forward.”
RBI indicates stable policy rates
K V Srinivasan, Executive Director and CEO, Profectus Capital Ltd, said: “The RBI has indicated stable policy rates. This should give confidence to the industry to go in for capex, given the busy season is approaching. There may be a short-term tightening of market rates, given the indication that they may reduce excess liquidity in the system through open market operations, but that should not impact long-term loan rates.”
The steady interest rate environment will help us in keeping our offerings competitive and affordable
Tribhuwan Adhikari, MD & CEO of LIC Housing Finance, said: “RBI’s decision to maintain the repo rate unchanged in today’s MPC meeting is on expected lines. The move demonstrates RBI’s continued commitment to support growth and maintain economic stability. The steady interest rate environment will help us in keeping our offerings competitive and affordable. Overall, the move will improve the sentiments.”
RBI decision sends a positive signal to the various constituents of the economy
Shilpa Pophale, Managing Director & CEO, Electronica Finance Limited, said: “RBI’s decision to keep the key policy repo rate unchanged at 6.5 per cent is a positive move. This will send a positive signal to the various constituents of the economy, including our customer segment of MSME borrowers and ensure that the investment cycle continues. This will also help spur growth during the crucial festive season. Another welcome move is of RBI allowing middle and base layer NBFCs to use credit risk mitigation instruments for reducing counterparty exposures under credit concentration norms.”
MPC delivers an In-line and balanced policy
Niraj Kumar, Chief Investment Officer, Future Generali India Life Insurance Company Ltd, said:
“MPC has delivered an In-line and balanced policy, with the overarching focus being maintaining the stability in policy stance, despite being clouded by the chaos in global rates market and commodities.While the MPC’s mention of the need for OMO sales has slightly spooked the markets in the interim, it’s imperative from liquidity standpoint, especially with Global bond index inclusion on the horizon. Overall, the MPC has stuck to theme of continuity in the policy exercising caution and being data dependent amid the looming uncertainty around global markets.”
RBI’s decision to maintain the repo rate aligns with our expectations
Aalesh Avlani, Founder and Director, Credit Wise Capital, said: “Amidst global uncertainties, the RBI’s decision to maintain the repo rate aligns with our expectations. This decision brings a welcome dose of optimism as we step into the festive quarter, serving as a significant means for increased consumer products including automobile purchases during this festive season. Also, it’s reassuring to see the RBI recognizing the resilience in credit growth within the banking sector. Moreover, the RBI’s decision to permit middle and base layer NBFCs to utilize credit risk mitigation tools to reduce counterparty exposures under credit concentration norms is a welcome move.”
RBI Policy – turning pitch, not played – no policy action
Anitha Rangan, Economist, Equirus, said: “Despite global uncertainties which warrant a close monitoring, RBI chose to keep policy rate unchanged at 6.5% and maintaining its “withdrawal of accommodation” stance. Surprisingly RBI has retained its inflation estimates for FY24 at 5.4% despite marginally increasing Q2 estimates to 6.4% (6.2%) and taking down Q3 to 5.6% (5.7%). FY 24 GDP growth rate remains unchanged at 6.5%. 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, volatile global food and energy prices. The positive driver is that core inflation is softening and is critical for keeping the headline inflation lower. However, on a turning pitch, a surprise shot can emerge at any time.”
RBI is undoubtedly going to need a fair amount of time to bring the inflation rate back to the ideal band
Shlok Srivastav, Co-founder and COO, Appreciate, said: “While the RBI did sound a note of optimism in terms of what the future holds for India, overall, it’s clear that the current uncertainty in the global environment is weighing on it quite heavily. Nevertheless, its prognosis that September inflation is likely to be lower is good news, as is its affirmed alertness when it comes to handling inflation expectations. The RBI is undoubtedly going to need a fair amount of time to bring the inflation rate back to the ideal band. Global macro factors will play a key role in determining the timeline for this. However, for now, its maintenance of the retail inflation rate at 5.4% for 2023-24 looks like a positive sign. In addition, the 5.8% YoY rise in remittances in Q1 FY24 and the decline in the current account deficit to 1.1% of GDP are also heartening. As usual, the market will be looking to the RBI’s upcoming guidance for more specific cues.”
With FY24 inflation projection still around 5.4%, it is a positive outcome for retail, SME and MSME customers
Jayaprakash, Chief Growth Officer, Jiraaf, said: “The decision by RBI Monetary Policy Committee (MPC) to leave key policy repo rate unchanged at 6.5% is in line with expectations. While there are still some uncertainties tied to global economic traits, oil reserve levels & price fluctuations and volatile food and energy prices, some amount of easing of overall inflation was observed from the last rate rise that was done in February 2023. With FY24 inflation projection still around 5.4%, it is a positive outcome for retail, SME and MSME customers as they continue to support the FY24 GDP growth target of 6.5%. This decision will definitely be a welcome reward for both businesses and customers alike with festive season around the corner, and should spur growth whether it is new investments, shopping, home buying, or travel.”
The central bank has little reason to become more dovish at this point
Raghvendra Nath, Managing Director, Ladderup Wealth Management, said: “In order to maintain the nation’s strong growth rate, RBI was anticipated to leave the repo unchanged.
Given the growing oil prices and the current global difficulties, the central bank has little reason to become more dovish at this point.
The high interest rates are here to stay for quite some time before we see any changes being announced by the central banks.”
Upcoming festive seasons, there would not be additional ease of liquidity in the market
Nikunj Agarwal, Propelld, Head – Debt & Lending Alliances, said, “During the October Monetary Policy Committee (MPC) meeting, the Reserve Bank of India (RBI) has opted to maintain the status quo concerning repo rates & policy stance. It is worth noting that the prevailing sentiment among market experts largely anticipated such an outcome from this committee.
This means that during the upcoming festive seasons, there would not be additional ease of liquidity in the market, as most Financial Technology (Fintech) and Non-Banking Financial Companies (NBFCs) are likely to persist with similar pricing structures.
However, looking ahead, though far-fetched, Fintechs and NBFCs may anticipate a marginal reduction in borrowing rates. Such a reduction would be deemed necessary to fortify their Net Interest Margins (NIMs) following a prolonged period of relatively tight financial conditions over the past few quarters. This will be required for ensuring customer delight & business growth.
RBI’s move demonstrates continued commitment to support growth and maintain economic stability
Tribhuwan Adhikari, MD & CEO of LIC Housing Finance, said “RBI’s decision to maintain the repo rate unchanged in today’s MPC meeting is on expected lines.
The move demonstrates RBI’s continued commitment to support growth and maintain economic stability.
The steady interest rate environment will help us in keeping our offerings competitive and affordable. Overall, the move will improve the sentiments.”
