The Reserve Bank of India’s (RBI’s) move to continue with the pause on repo rate hikes in its October bimonthly policy meeting was welcomed by experts on Friday.
BankBazaar CEO Adhil Shetty said, “The RBI’s view is that developed economies are close to peaking of rates. This is welcomed, although inflation is expected to remain elevated for longer than anticipated. We see cautious optimism in the governor’s speech. It suggests that things are difficult right now. But interest rates and inflation are on the right trajectory with limited upside risks, and the central bank will continue to manage growth expectations using all the tools of monetary policy.”
RBI Governor Shaktikanta Das earlier in the day announced that the monetary policy committee (MPC) has unanimously decided to keep the policy repo rate unchanged at 6.50 per cent. He said, “After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, RBI’s Monetary Policy Committee decided unanimously to keep the Policy Repo Rate unchanged at 6.5 per cent.”
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This is the fourth time that the committee has decided to keep the benchmark repo rate unchanged. Before this, the MPC raised the repo rate by 250 basis points from May last year till April 2023.
Niraj Kumar, Chief Investment Officer, Future Generali India Life Insurance Company 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.”
While announcing the monetary policy, Das said, “Macroeconomic stability and inclusive growth are the fundamental principles underlying our country’s progress. The policy mix that we have pursued during recent years of multiple and unparalleled shocks has fostered macroeconomic and financial stability.” He added, “The twin balance sheet stress that was encountered a decade ago has now been replaced by a twin balance sheet advantage with healthier balance sheets of both banks and corporates.”
The RBI governor said that the retail inflation in September is likely to ease, however, a fall in kharif sowing may pose a threat to it.
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India’s retail inflation in August eased to 6.83 per cent from a 15-month high of 7.44 per cent in July. But inflation continues to remain above the upper limit of RBI’s tolerance band.
Commenting on the MPC outcome, Mahesh Agarwal, National -Head Wealth at AUM Capital said, “The RBI’s decision to maintain the status quo has been needed for the market. Also, There is still a long way to go before inflation is brought into line with its targets.”
“Since inflation is a primary concern and growth is resilient, RBI seeks 4 per cent inflation. To avoid hyperinflation and a collapse of the rupee, this target is set to prevent the Indian economy from overheating. As a result, RBI will keep liquidity tight and yields are likely to be elevated. In addition to OMO sales, RBI will use these to control liquidity. It is therefore expected that yields and curves will be higher in the medium term,” Agarwal added.
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Piyush Baranwal, Senior Fund Manager (Fixed Income), WhiteOak Capital Asset Management Ltd said, “Status quo in today’s policy indicates MPC’s comfort with moderating trajectory for CPI and RBI is now using tighter liquidity including through OMO sales to accelerate transmission of past policy measures to drive inflation towards its 4 per cent target. As a side benefit, this should also help ward off pressure on the external front as global markets adjust to the ‘higher for longer’ rates and tighter financial conditions.”
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.”