RBI Monetary Policy Highlights: Repo rate hiked by 50bps, GDP growth retained at 7.2%; Governor Das says need to tame inflation without compromising growth

The Bond yield curve is already pricing for a repo rate of 6% by early next year. Thus, the bond market may not be too sensitive to RBI’s rate hikes going forward. However, high global monetary policy uncertainty, rising crude oil prices, and unfavourable demand-supply dynamics will continue to put upward pressure on medium to long-term bond yields.Lending rates have already moved up as most loans today are linked to benchmarks like Repo rate or MCLR. The interest rate on fixed deposits will also move higher in the coming months. From an investor's perspective, the return potential of liquid and debt funds has improved significantly after the sharp jump in bond yields over the last six months. The gap between the bank savings rates and liquid fund returns will widen and remain attractive for your surplus funds. Investors with a short holding period and low-risk appetite should stick to categories like liquid funds of good credit quality portfolios.  Medium to Long term interest rates in the bond markets are already at long-term averages as compared to fixed deposits which remain low. Investors with more than 2-3 years holding period can consider dynamic bond funds which have the flexibility to change the portfolio positioning as per the evolving market conditions. However, such investors should be ready to tolerate some intermittent volatility in the portfolio value.  -Pankaj Pathak, Fund Manager-Fixed Income, Quantum AMC

The repo rate hike by RBI will impact the home loan borrowers, both the existing as well as the new ones. The hike is positive for the banks and the NBFCs but it is a burden for the borrowers. RBI has raised its inflation forecast for FY23 by 100 basis points to 6.7%, citing supply shocks emanating from the Russia-Ukraine war and the consequent surge in commodity and oil prices. This is very worrisome. The rise in inflation will impact the purchasing power. Simultaneously, the borrowing cost has gone up too. This dual phenomenon will lead to a slowdown in the economy. Having said that, the repo rate is still lower than the pre-pandemic level of 5.15 percent. There is room for RBI to increase the repo rate up to 5.5%.- Kunal Valia, Chief Investment Officer – Listed Investments, Waterfield Advisors.

There is no surprise by RBI in this policy after a shock in the last unplanned policy for the market.  The market welcomed the policy with a positive reaction as there was some fear of an outside 75 basis points hike in repo rate and hike in CRR. Banking stocks are showing strength after policy as a 50 basis hike was already priced in and there is no hike in CRR. The overall policy looks good from the market's perspective and now the market will look for US CPI numbers and the FOMC meeting next week.- Parth Nyati, Founder, Tradingo on RBI Policy.

RBI announced a 50bps rate hike, in line with our estimate. But what has surprised us is that RBI continues to believe the GDP will grow at 7.2 per cent, which we think is an optimistic number. Thus, projected inflation numbers revised upward are in line with our expectations. We expect more rate hikes from the RBI in the coming months. While predicting inflation, RBI has assumed crude at $105 per barrel from its previous estimate of $100 per barrel. Right now, crude is trading at $120 per barrel. Therefore, there is a high probability that the inflation number may get revised upwards in the coming monetary policy.- Mohit Batra, Founder & CEO of MarketsMojo

RBI has raised the repo rate by 40bps  to 4.9% , the inflation projection for this fiscal is 6.7% and will remain above the tolerance band of 2-6%  for three quarters in this fiscal, RBI still expects the economy to grow at a rate of 7.2% . The SDF and MSF have been increased to 4.65% and 5.15% respectively, RBI is expected to reduce liquidity, reinforcing its fight against inflation and extending its effort to return monetary conditions. The cost of lending for banks is set to go up due to an increase in repo rate ,retail loans will face direct impact due to this.- Manoj Dalmia, founder and director Proficient equities Private limited
 

Markets expect regulators to have better information and hence act proactively in order to maintain macro stability and equilibrium. Regulators need to prioritize their target variable between growth and inflation. In India, we have raging inflation at 7.8%, higher capacity utilization, and growing consumer confidence, and yet the policy rate has been hiked to 4.90% only, which is lower than pre-pandemic levels. The ideal effective overnight rate should be closer to 6%, but at this pace, it might take us 3-4 policies more to reach there. Monetary policies tend to work with significant lags on the real economy. The longer we wait in raising rates adequately, the more we are letting the underlying inflationary fires simmer. Don't expect inflationary expectations to come down and most likely the 10-year G-sec yield would trade between 8.25-8.50 in the next couple of quarters - Sandeep Bagla, CEO, Trust Mutual Fund

4 stocks to buy after RBI's repo rate Hike

The rate hike was as expected. The governor has increased the inflation forecast for FY 23 to 6.7% which doesn't bode well. RBI is taking the right steps to tackle inflation while not compromising on growth. With inflation persisting above comfort levels due to the supply constraints, any relief from that perspective will be good for the markets. With the growth rate for FY 23 retained at 7.2%, this would be the right time to buy the "India" story with a medium to long term perspective.- Sumit Chanda, Founder and CEO, JARVIS Invest. 

Based on today’s announcement, these are the top recommendations by JARVIS:
Happiest Minds
IFB Industries
LINDE India 
Sonata Software Ltd.

The market and rate-sensitive stocks & sectors should not be dampened by the strong rate hike of 50bps as it is in line with the elevating inflation scenario and accordingly equities have been consolidating during the year.  On the bright side, there are some points of ease such as no increase in CRR, economic growth being maintained healthy at 7.2% and no additional measures announced to reduce the liquidity of the banking system. However, companies which are heavily leveraged will be impacted on a medium-term basis due to the interest rate rising cycle. The banking sector, being neutral to rising interest rate cycle for a growing economy is our top recommendation, coupled by factors like robust credit growth, lower stress, strong liquidity position and attractive valuation- Vinod Nair, Head of Research at Geojit Financial Services 

The lowering of the repo rate will ease the economy, control inflation, and set the stage for more sustainable growth. All these three parameters are greatly needed for retail sales to succeed in a vast country like India. The rate of inflation has been beyond the safe limit of 6% over the past few months and such a step was needed. A low-interest regime had to be altered toward a more holistic growth paradigm. Meanwhile, an overall robust economy will continue to drive retail sales in India, despite personal home finances becoming a little dearer. The job market is booming, e-commerce growing rapidly, and malls & shopping centres have resumed. This is a great sign for the retail industry in general. The current fiscal is the year, the industry was waiting for a while- Ridhima kansal, Director, Rosemoore

RBI’s recent step to increase the repo rate by 50 basis points has been on the expected lines. To curb inflation, the regulatory bodies in India were required to control liquidity circulation in the economy. For a few months, the inflation rate has been above 6%, which is beyond the RBI’s safe zone. If not controlled, the inflationary pressure could destabilize an otherwise bullish Indian economy. Although the recent step will increase the home loan rates, an unstable economy is not conducive to the overall health of the real estate industry. For the industry to operate optimally, it is important that the economy continues to grow in a stable, inclusive, and steady fashion.- Atul Goel, MD, Goel Ganga Group

Rate hike of 50 bps is in line with consensus expectation. On the brighter side, the GDP growth estimates is maintain at 7.2% for FY23 and the commentary on liquidity indicates decline in probability of CRR hike in the near future. Lastly, the measures taken to support upturn in the real estate cycle is also a positive read thru in the policy. Overall, we continue to remain positive of banking sector and constructive on equity markets- Jaideep Arora, CEO, Sharekhan BNP Paribas 

RBI hikes key policy repo rate by 50bps to 4.90%, which was along expected lines. The markets were relieved, as there was no CRR hike. However, the RBI did remove the word “Accommodative” from the policy stance and decided to remain focused on withdrawal of accommodation. On the inflation front, the forecast for the FY23 has been raised to 6.7% from 5.7% earlier, due to the elevated commodities prices, which we believe is realistic. On the growth front, GDP growth rate estimates retained at 7.2% for FY23, which is a healthy growth rate in the current backdrop. Overall, a significant part of the pandemic led “policy accommodation” has been reversed. Bond yields will track global crude oil prices, monetary policy stance of the major central banks and the inflation trajectory- Sampath Reddy, Chief Investment officer, Bajaj Allianz Life

​The RBI’s actions today were in line with the market’s expectations as the overall inflation numbers were far away from the central bank’s comfort levels. However, the silver lining was the untouched CRR rates and the market is rejoiced by the same.  Nevertheless, the current inflationary pressures could increase further due to geopolitical factors and rising commodity prices.-  Sunil Nyati, Managing Director, Swastika ​Investmart Ltd. 

In line with the expectation, RBI has increased the repo rate by 50 basis points and is already discounted by the market. The Ukraine Russia war has led to an increase in inflation globally beyond tolerance level and is effecting the economic growth. However, most of the industries are already facing headwinds due to steep increase in raw materials cost and fuel prices, and a hike in the rates will further increase the burden. The Fed is also increasing the rate so there is major possibility that apart from equity market, other markets like debt market and bond market may see some outflow anytime soon. Auto, Real estate, Banking and infrastructure stocks would be worst hit by the rate hike as loan financing is a major part of these sectors. FMCG, Insurance, Energy, Power and Utility sectors provides a cushion against rising interest rates- Ravi Singh, vice President and head of Research, Share india

With CPI forecasts at 6.7% from 5.7%, RBIs rate hike of 50bps came in line with market expectations and was taken into account by the market in the previous trading sessions. In an attempt to curb inflation, the expectations of this rate hike had been factored in the form of increase in bond yields, which might result in expensive borrowing for corporates. However, a consequent correction expected in raw material prices as a result of this announcement might provide a stable long term growth plan for the overall economy- Shivam Bajaj, Founder & CEO at Avener Capital.