- Overall, the outlook remains constructive on fixed income: Mahendra Jajoo, CIO – Fixed Income, Mirae Asset
- A clear signal for a pick up in growth with the risk of inflation having come down: K V Srinivasan, Executive Director and CEO, Profectus Capital Ltd
- It gives some respite to prospective homebuyers looking to avail of home loans in the near future: Anuj Puri, Chairman – ANAROCK Group
NE BUSINESS BUREAU
MUMBAI, JUNE 8
The Reserve Bank of India’s (RBI) Monetary Policy Committee did not change the repo rate from 6.50 per cent while projecting gross domestic product (GDP) and inflation at 6.5 per cent and 5.1 per cent respectively.
Announcing the decision of the MPC after its three-day deliberations, RBI Governor Shaktikanta Das said on Thursday that the committee unanimously decided to keep the repo rate at 6.5 per cent.
Das said taking into account the economic factors, the MPC has predicted GDP growth at 6.5 per cent in FY24.
As regards the inflation rate, the MPC forecast was 5.1 per cent for 2023-24 taking into account the rabi crop harvest/monsoon projections and favourable near term inflation trend.
“The forecast of a normal south-west monsoon by the India Meteorological Department (IMD) augurs well for the kharif crops. Uncertainties, however, remain on the spatial and temporal distribution of monsoon and on the interplay between El Nino and the Indian Ocean Dipole (IOD),” noted Das.
He further stressed that geopolitical tensions; uncertainties around the monsoon and international commodity prices, especially sugar, rice and crude oil; and volatility in global financial markets pose upside risks to inflation.
Not surprisingly, the RBI has projected retail inflation will remain above 5 per cent in the current financial year ending March 2024.
The MPC met on June 6th, 7th and 8th.
Industry captains welcome RBI move on repo rate
Mahendra Jajoo, CIO – Fixed Income, Mirae Asset Investment Managers (India) Pvt. Ltd., said : “In line with broader market expectations, MPC kept the key policy rates unchanged as also retained the current stance of gradual withdrawal of accommodation. Even as domestic macro environment continues to improve with latest growth data surprising on the upside and inflation data surprising on the down side, global uncertainties remain in terms of entrenched services inflation, higher alert flag on El Niño and adverse geo political developments. That necessitates continued caution, dampening hope of any rate cut in immediate term but still suggesting an extended pause. As the markets were beginning to price a more optimistic time frame on future rate cuts, some realignment may be warranted. Bond yields are likely to remain range bound. 10Y GOI yield may trade in 7-710% band. Money market rates may inch up by 10-15bps. Overall, the outlook remains constructive on fixed income.“
Prashant Pimple, Chief Investment Officer – Fixed Income, Baroda BNP Paribas Asset Management India Pvt. Ltd., said: “The Monetary policy outcome was in line with our expectations in terms of status quo on policy rates and lowering of FY 24 CPI projections to 5.10 from 5.20% ; however, MPC preferred to be in a wait and watch mode with as Governor mentioned “ Arjuna’s eye” towards inflation. With 1 year forward real rates in a positive territory and somewhat a goldilocks economy for the domestic markets ; We expect a long pause by RBI for this calendar year. We expect the yield to bear steepen from here.”
K V Srinivasan, Executive Director and CEO, Profectus Capital Ltd., said: “The RBI holding repo rates is a clear signal for a pick up in growth with the risk of inflation having come down. The unexpectedly sharp GDP growth in Q4 and the interest rate stability is a call for the capex cycle to pick up. MSMEs especially can look at the medium term with confidence and start investing in expanding and modernising their businesses. However, external risks continue to remain”.
Anuj Puri, Chairman – ANAROCK Group, said, “As was anticipated, the RBI has decided to keep the repo rates unchanged at 6.5%. This gives some respite to prospective homebuyers looking to avail of home loans in the near future. The unchanged repo rate can help maintain the momentum in housing sales, which has so far been firing on all cylinders in 2023. As per ANAROCK Research, we saw housing sales in first quarter of 2023 scale new heights, breaching the one lakh mark at 1.14 lakh units across the top 7 cities. Given the current unchanged rates, the outlook for those looking to buy their first home via a home loan soon remains favourable. Interest rates from most banks will continue in single digits. With top banks, they currently hover between 8.7 to 9.65%. A future rate hike, if any, may push the rates into double digits. The persisting financial instabilities in advanced economies of the world may have repercussions in India, causing the RBI to take such a step to face these headwinds.”
Achala Jethmalani, Economist, RBL Bank commented, “In a no surprise move, monetary policy maintained a status-quo on policy rates and stance. It remains in a ‘wait & watch’ mode and vigilant on inflation trajectory. We expect a pause on policy rates through CY2023 while modulating system liquidity. The window for policy pivot to rate cuts could open-up in 1H CY2024, if inflation trajectory warrants given that growth remains robust.”
Madan Sabnavis, Chief Economist, Bank of Baroda said: “The credit policy was more or less on expected lines. The RBI has indicated two things. The first is that while GDP growth will be 6.5% for the year, there will be a tendency for the growth rate to keep declining progressively across the quarters. The other is that inflation will be 5.1%, though will be lower at 4.6% in Q1. Subsequently it will be increasing progressively in the next two quarters to 5.4% in Q3. This indicates that it looks unlikely that there will be a rate cut until Q4. The RBI has also been clear that the decision taken today is for this quarter only and future action will be data driven. Hence this should not be taken as being close to change in stance. We expect bond yields to be stable especially at the longer end.”
On the aspect of inflation, Siddhartha Sanyal, Chief Economist & Head Research, Bandhan Bank, said:, “The status quo on the repo rate in today’s MPC meeting was almost a foregone conclusion and the committee did not spring any surprise. Interestingly, despite lowering the Q1 FY24 CPI inflation forecast by 50 basis points, the CPI projection for the full year was kept almost unchanged. As expected, the RBI underscored that the vigil on inflation will remain strong as they emphasised on the importance of reaching the CPI target of 4% rather than merely staying within the tolerance band. The emphasis on achieving the 4% target and keeping the stance of policy unchanged at “withdrawal of accommodation” likely have pushed out expectations of rate cuts at the margin. Overall, the central bank is expected to keep the repo rate unchanged for several quarters, likely beyond the current calendar year. Monetary policy in India of late had been prudent, decisive and often front-loaded, a trend that is likely to continue in the foreseeable future”
