RBI MPC Meeting Highlights: Home, personal loan EMIs set to further increase as RBI raises key rates - more hikes on cards?

Regulator Walking Tightrope

“It is reassuring to see that the RBI is not letting its guard down despite an improvement in inflation numbers. We understand that the regulator is walking a tightrope between managing inflation and growth. This phase of rate hikes should end soon. As a business, we continue to see robust demand and foresee the momentum to continue on the back of higher digitisation and consumer awareness.”

Gaurav Chopra, Founder & CEO, IndiaLends

Good Policy May Give Confidence To Bond Market

We expect inflation to remain stubborn on the back of wage inflation and strengthening demand in the Indian economy. The focus on inflation control should eventually soothe bond markets as lower inflation in the medium term is good for bond holders.

Markets should also take relief from the tumbling crude oil prices in the international markets. Summarizing, the rate hike as per expectations, commentary hawkish which was not expected but is appropriate and overall, a good policy that should give confidence to bond markets in the long run.

Sandeep Bagla, CEO, Trust Mutual Fund

RBI's Fight Against Inflation Continues

Against the backdrop of geopolitical tensions, global uncertainty, and a slowdown in global growth, India growth story is a stand-out. Inflation continues to be sticky and further calibrated actions are likely by the central bank. Reigning-in inflation and bringing it below the top end of the band and then subsequently further down is RBI’s main focus.

Venkatraman Venkateswaran - Group President & Chief Financial Officer at Federal Bank

Further Hikes May Hurt Economy

While the hike was in line with market expectations, we believe that this will be the last for some time. Monetary policy decisions have a lagged impact on inflation and the impact of the recent hikes will only be visible by the middle of next year. We must pause at this juncture and wait for this impact to manifest and analyse it before we proceed any further. Further hikes may just hurt the economy without any associated benefits.

Rajiv Shastri, Director, and CEO, NJ AMC

35 Bps Hike Seems Best To Manage Inflation

Interest rates are bound to rise, and GDP growth rates will be lower. In such a scenario, a 35 bps hike in the policy repo rate seems to be the best bet to manage inflation without denting growth rates severely. The MPC’s initiatives on making UPI more well-rounded and complete will further strengthen India’s world-class digital payments ecosystem.

Murali Ramakrishnan, MD & CEO, South Indian Bank 

RBI MPC Meeting Outcome LIVE: Shanti Ekambaram, Whole-time Director of Kotak Mahindra Bank Ltd, reacts

“As widely expected, the MPC decided to increase the Repo Rate by 35 bps, from 5.9% to 6.25%. The Governor emphasized that economic growth at 6.8% has been robust and amongst one of the best in the world.  With a good monsoon, increase in manufacturing activity and robust services growth, economic growth outlook looks stable .Thus emphasis on inflation targeting and continuing stance of withdrawal of accommodation while being committed to ensuring adequate liquidity to support growth. While CPI has moderated, core inflation remains sticky and above the comfort zone of the Central Bank. Given the continued global headwinds we expect RBI to be nimble and take action wherever warranted.” 

 

In-Line With Expectations

The RBI governor exhibited confidence in India's growth trajectory but mentioned that it is crucial to be vigilant to the secondary effects of high global commodities, especially energy and food prices.

We believe the MPC decisions today are on expected lines and would not have any major impact on Indian markets, purely based on decisions announced today.

Naveen Kulkarni , Chief Investment Officer, Axis Securities PMS 

A Dovish Tilt

While the policy rate is in-line with expectations, overall, the tone and read of the policy is dovish. With the message that the first focus of the MPC is to bring down inflation below 6% and then towards a medium-term goal of 4 per cent, the guidance seems that RBI is now comfortable with the inflation trajectory and growth also needs attention.

Overall, policy has a dovish tilt and with the next policy after the budget, RBI will likely pause before ensuring that transmission of current policy rates is complete.

Anitha Rangan, Economist, Equirus

Further Tightening Likely

Overall, the policy seemed slightly hawkish on the margin and indicated that there may be space for further tightening, although it will depend on the inflation trajectory and the terminal rate for the US Federal Reserve.

RBI governor also mentioned that market participants must wean themselves away from the overhang of liquidity surpluses which means market should be prepared for further tighter liquidity condition.

Post the policy announcement bond yields hardened a bit. With corporate bonds spreads still being very tight, we may witness some increase going forward. We prefer the short-medium term part of the yield curve.

Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life Insurance

Moderation In Stance Expected

The markets were expecting a slight moderation in the stance, but it continues to be the withdrawal of the accommodative stance while supporting growth. This may be interpreted that further action on the rate front can still happen before arriving at the terminal rate.

Lowering the GDP forecast is predominantly factoring in the global headwinds which prevail and would likely impact India’s GDP growth. The inflation forecasts for the residual period of FY23 have been marginally increased from the previous forecast in view of the higher inflation level still prevailing.

The RBI Governor also gave caution to the market participants that this surplus liquidity should not be taken for granted hence the liquidity withdrawal will continue. Overall the tonality of the statement can be considered slightly hawkish in nature.

Ajit Banerjee, Chief Investment Officer, Shriram Life Insurance

A No-Surprise Event

This MPC announcement was considered a no-surprise event but the governor had other plans. The RBI sounded as firm as it was in the last meeting about their stance of still being focused on the withdrawal of accommodation.

We believe by maintaining its stance RBI has dodged being in a box and will have the liberty to look at future data points to navigate its future course of action. Going forward there could be a tug-of-war between declining inflation in India and rising interest rates by the US Fed – against this backdrop, it would be interesting to see how well the RBI would manage its repo rates.

- Apurva Sheth, Head of Market Perspectives, Samco Securities.

Rates May Not Go Much Higher From Here

Even though headline CPI is likely to fall below the MPC’s upper tolerance band of 6% over the next few months, we remain some distance away from the ultimate policy goal of 4% headline CPI. Hence, while policy rates in India may not go much higher from here, the bar for any possible policy pivot remains high. In this backdrop, we expect the 10-year G-Sec to trade in the range of 7.25-7.45% in the near term.

Churchil Bhatt, Executive Vice President & Debt Fund Manager, Kotak Mahindra Life Insurance

Home Loans To Rise

"As interest rates rise, the impact of monthly instalments for both new and existing customers will be felt. For instance, if the rate of interest is hiked by 0.35, then the EMI of a loan of Rs 10 lakh taken at 8.5% for ten years will increase by around Rs 300. To deal with the impact of a higher interest rate, it is important to maintain good credit, research the best rate offers, and consider refinancing existing loans to lower the monthly payments customers can also opt for long tenures or switch to a floating rate of interest."

- Atul Monga, Chief Executive and Founder of Basic Home Loan.

More Rate Hikes On Cards?

Given that RBI is emphasising containing inflation below the target rate and projections stating inflation to remain above 6% till March 2023, this implies that RBI will likely deliver a 25 bps hike in February 2023.

Terminal rate will be 6.5% as inflation is projected to average 5.2% in H2 FY24, implying no need for rate hikes at the April Policy meeting”

- Amar Ambani, Institutional Equities Head, YES Securities

'Main Hoon Na'

"The RBI has given a “Main Hoon Na” (we are there ) policy, reassuring the market. In a world where central banks are fighting to regain credibility, the RBI stands tall managing conflicting objectives of growth and inflation admirably. A data-driven RBI will keep on playing balls on merit and continue to keep the growth scoreboard moving with inflation under check.”

- Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company