RBI keeps repo rate steady for the 5th time: Here is what market experts, analysts and industry leaders say

RBI Monetary policy meeting outcome: Announcing the decision after three-day deliberations, the RBI Governor Shaktikanta Das-led monetary policy committee (MPC) on Friday, December 8, 2023, kept the repo rate unchanged for the fifth time at 6.5 per cent. He said that five out of six MPC members voted for the continued stance of withdrawal of accommodation. Taking into account the economic factors, Das said that MPC has predicted GDP growth at 7 per cent in FY24. As regards the inflation rate, the MPC forecast was 5.4 per cent for 2023-24 taking into account the various domestic issues, including potential agricultural produce. Das also said uncertainty exists due to the geopolitical situation. The MPC is alert and prepared to take necessary actions that are needed, he said.

Here is what experts, analysts, and industry leaders have to say about the December 2023 RBI Monetary Policy Review:

Anuj Puri, Chairman, ANAROCK Group | Stable Repo Rates to keep the momentum going for the housing market

"This is an extension of the festive bonanza that RBI gave to the homebuyers in its last policy announcement. It gives homebuyers yet another opportunity to make cost-optimized home purchases. Considering the present trends, the housing market is on a bull run and unchanged home loan rates will only add to the overall positive consumer sentiments. Going forward, we may expect the momentum in housing sales to continue in the wake of the unchanged repo rates coupled with the resultant stable home loan rates and positive economic outlook on India."
 

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. The MPC remains focused on bringing headline CPI inflation towards 4 per cent YoY, and particularly vigilant about the risk of a renewed spurt in vegetable inflation in Nov-Dec’23."

"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.” 
 

Unmesh Kulkarni, Managing Director Senior Advisor, Julius Baer India

“Given the continued concerns and focus around inflation, we are unlikely to see any reversal in policy rates anytime soon, at least till mid-2024. The evolving global growth and rate situation will also be a key determinant of RBI’s policy actions, going forward.”
 

Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers

"Although the magnitude of the GDP forecast upgrade exceeded our initial projections, all other declarations and positions remained largely consistent with our expectations. 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."
 

Gaurav Dua, Head, Capital Market Strategy, Sharekhan by BNP Paribas

"Monetary policy was on expected lines. RBI highlighted the risk of over tightening in the backdrop of global slowdown. This is despite the increase in GDP forecast. Hence, it is more of a balanced view or neutral stance as compared to inflation focussed 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."
 

Girish Kousgi, MD & CEO PNB Housing Finance

“We welcome RBI’s decision indicating a balanced approach to economic growth and inflation. While the long-awaited normalcy still eludes the global economy, India anticipates an optimistic growth trajectory. The GDP growth projection for FY24 to 7 per cent from the earlier 6.5 per cent will help maintain the ongoing economic momentum."

"The emphasis on supporting housing consumption via urban and rural demand augurs well, providing a boost to the real estate segment. The focus on data security through the proposed cloud facility for financial institutions is also laudable, and will help strengthen consumer trust and confidence. Further, the regulatory framework for web aggregation will create a more level playing field for all entities vis-à-vis loan processes, thereby ensuring an unwavering focus on customer centricity."

"We are optimistic about the growth opportunities in the overall real estate sector, given our heightened focus on retail affordable housing, and will continue to leverage these to cement our leadership in the industry.”
 

Mukesh Kochar, National Head of wealth at AUM Capital

"In terms of inflation, crude is providing a little comfort for the Reserve Bank. Core inflation remains stuck, but it is at a comfortable level. There is also a cooling off of inflation around the world. We're convinced the rates are picking up and should continue to be heard for some time."

"The US Federal Reserve is expected to cut its interest rate around the middle of next year, and flows in JP Morgan's bond index funds are scheduled to start before that. The yield on GSec should decrease by about 50-75 basis points as a result of both factors. We remain positive on long-term debt funds from 1-2 year perspective."
 

Anurag Mittal, Head of Fixed Income, UTI AMC

“We expect rate cuts probably to start in H2CY24 preceded by a change in forward guidance & stance on liquidity once RBI has greater comfort on dissipation of one-off food price shocks.With global & domestic policy rates peaking & inflation momentum slowing down, the environment for fixed income is constructive with opportunity to participate in capital gains as the rate cycle turns.”
 

Umeshkumar Mehta, CIO, SAMCO Mutual Fund

"RBI positioned its prudent stance keeping repo rate unchanged and signaled to remain focus on withdrawal of accommodation, certainly is music to investors’ ear by subtlety communicating peaking of interest rate cycle, with no increase in interest rate in sight.  Further, balance sheet moderation as a percentage of GDP is applauded and shows strength in independent thought leadership of RBI."
 

Raghvendra Nath, MD, Ladderup Wealth Management

“We continue to witness the lingering effects of the 250-basis point hike in the Repo rate, reflecting in the market dynamics. India's impressive Q2 Real GDP growth of 7.6 per cent, surpassed all projections. This led the RBI to revise the FY24 Real GDP growth projection upward to 7 per cent, a testament to our resilient domestic demand."

"The encouraging signs, including an expanding manufacturing PMI and healthy growth in eight core industries, underline our confidence in sustained robust growth. Moreover, the RBI's stance echoes the global trend of central banks signaling an enduring period of higher rates, further emphasizing the need for a cautious yet progressive approach in navigating the financial landscape.”
 

Madhavi Arora, Lead Economist, Emkay Global Financial Service

"We have been insisting OMO sales was merely announced last time as a way to depict implied policy bias for higher rates and a way to offer higher risk premia to the world and to anchor INR – none of which turned out to be a worry and India-US 10Y spread has widened to ~300bps after having seen the decadal lows of ~240bps in mid-Oct ’23. Meanwhile, the spread between avg weighted call money rate and repo rate has since widened as liquidity tightened further."

"We expect liquidity to stay comfortable and range-bound in the near term but to tighten by March. The policy outcome is largely neutral for bonds and we see markets to stay range bound amid low year-end liquidity, with ten yr yield hovering 7.20-7.30 per cent. However, RBI’s consistent concern on skewness of liquidity distribution in the banking system has now led them to allow reversal of liquidity facility under both SDF and MSF even on weekends."

"On domestic dynamics, the Gov sounded positive, and has upgraded FY24 growth to 7 per cent after undershooting 1H, now forecasting 6.3 per cent growth in 2H. We however see growth easing to <6 per cent comfortably in 2H and see FY24 at 6.6 per cent. The RBI’s FY25 GDP forecast for first three quarters looks healthy as well. On inflation, despite risks on account of patchy perishables, the MPC outlook is unchanged at 5.4 per cent for FY24 (Emkay: 5.4 per cent)."

"Overall, the policy tone was comfortable, while MPC still insisting on keeping an eye on inflation and 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."
 

Anitha Rangan, Economist, Equirus

"Along with expectations of strong growth, RBI has not revised its inflation estimate downward. This means that RBI is comfortable that at the current policy rate, growth is not inflationary but rather real-demand led growth. Furthermore, on the stance of liquidity, governor said that there was not need for “OMO sales” with liquidity remaining tight. This is a big relief to the bond markets, which were edgy on OMO sales expectations." 

"While sounding a point of caution on food inflation getting entrenched and being watchful of the 2nd round effects, governor also noted comfort on moderation in core and other components in head-line inflation. In summary, while reiterating their stance of remaining vigilant and watchful, there was a tone of comfort with most global central banks remaining on pause. A pro-growth policy without too much worry on inflation."
 

Manju Yagnik, Vice Chairperson of Nahar Group and Senior VP, NAREDCO, Maharashtra

"The affordability of house loans has been adversely affected by inflationary pressure, unaffordability, and a lack of new development, all of which have contributed to historically high-interest rates. As a result, demand for affordable housing, a substantial portion of the housing structure, has decreased. 

"To encourage small urban housing, the Indian government has granted an additional interest subsidy of Rs 60,000 crore for residences up to Rs 40 lakh. Furthermore, with the festive tailwind, demand for house loans is anticipated to continue to be strong, indicating a robust increase in property sales."
 

Atul Parakh, CEO of Bigul

"Unchanged interest rates translate to lower borrowing rates, which promote the purchase of consumer durables and sustain the need for reasonably priced homes, which is advantageous to real-estate developers. Furthermore, stable rates will assist non-banking financial companies (NBFCs) and other current borrowers whose loans are tied to repo rates, including auto and home loans, by enabling them to maintain funding costs lowering borrowing costs for their clientele."

"Banks could be moderately hit since their margins might contract. Unchanged rates could reduce the competitiveness of exports, which would hurt export-oriented industries like textiles and pharmaceuticals. The RBI's decision may not affect sectors that are not sensitive to interest rates, such as FMCG, agriculture, and basic services."

Mohit Ralhan – CEO, TIW Capital

“Citing the progress that has been achieved in bringing down inflation, the RBI MPC kept policy rate unchanged at 6.5%. However, commentary remained hawkish as the governor highlighted risks from higher food prices. Vegetable and pulses prices remain a key risk. High frequency indicators suggest food inflation could inch higher in November and December. While the committee can look through such transitory shocks, it remains vigilant on their second order effects in terms of such shocks feeding into inflationary expectations. Volatility in crude oil prices also remains a risk. Growth momentum remains robust. While urban demand has been resilient, rural demand is making a comeback. Corporate investment activity has picked up pace this year. Given that capacity utilizations have moved above average levels and leverage remains low, capex momentum is likely to continue. Given the positive backdrop, RBI revised FY 2024 growth estimate to 7% YoY. However, this also suggests that core inflation could remain sticky for longer. The RBI kept inflation projection for FY 2024 at 5.4%. The 4% target is expected to be achieved only by Q2 FY 2025. On liquidity front, the central bank maintained its stance of withdrawal of accommodation. However, compared to October meeting, significant progress has been achieved due to higher currency leakage during the festive season, higher government expenditure and RBI open market operations. This warrants low intervention from the central bank going ahead. To allow for better liquidity management, the central bank has allowed reversal of MSF and SDF facilities even on holidays and weekends. The move will come into effect from 30th Dec 2023 and will be reviewed in six months or earlier if needed.”

Niraj Kumar, Chief Investment Officer, Future Generali India Life Insurance Company Ltd

“MPC has delivered a ‘Neutral Policy with a positive undertone ‘and has been more upbeat on growth by nudging the forecasts higher, while yet being cognizant and cautious on achieving their medium-term inflation target. The upgrade in GDP growth rate to 7%, while maintaining inflation forecast renders key optimism in the policy and provides the requisite comfort to markets. Overall, MPC has explicitly signalled that the overarching approach continues to be that of policy stability and would eliminate any suddenness and surprises by being nimble amidst the dynamic global and domestic landscape.”

Pralay Mondal, MD & CEO, CSB Bank

“It's a very prudent move to not change the policy stance when the steps taken in the past are still being absorbed. The move to create a Fintech repository and increasing limits of UPI for specified categories helps growth and shows the increasing confidence of the regulator in the UPI framework. Reversal of SDF and MSF on holidays shows regulator’s intent to manage and keep liquidity efficient for the bank”

Murthy Nagarajan, Head-fixed income, Tata Mutual fund

"RBI maintained status quo on rates and stance in this monetary policy.  Growth rates for the current year has be upped to 7 percent from 6.5 percent, CPI inflation for the current year has been maintained at 5.4 percent. With GDP growth strong, the focus will be on bringing CPI inflation to 4 percent levels and monetary policy is expected to disinflationary. The Governor stated food inflation remains a risk and the second round effect has to be closely monitored. This policy is on expected lines which acknowledges fall commodity prices including oil . RBI governor acknowledge fall in global yields due as CPI inflation in global markets have fallen. In India, Purchase manager index for manufacturing rose to 56 and services sector buoyancy remained intact with toll collections and port traffic growth in double digits. 

Growth has surprised on the upside and CPI inflation is showing persistence due to global shock and weather related disturbances. RBI monetary policy in this type of situation cannot be in autopilot mode and need to be vigilant to control inflation. The ten year Government Securities are expected to be range bound with ten year trading in the range of 7.15 to 7.35 depending on  global and domestic macro developments."

Gurmit Singh Arora, National President, Indian Plumbing Association

RBI has released its updated monetary policies that project inflation in FY 2023-24 and FY 2024-25. CPI inflation at 5.4per cent for FY24 with higher rates for Q3 at 5.6per cent followed by dip to 5.2 per cent for Q4. In looking ahead to FY25, the RBI expects moderation in inflation at 5.2% for Q1, 4% for Q2 and 4.7%. Such projections point to a moderated optimism which the central bank should watch over the possibility of higher inflation in other fiscal years.

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