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
RBI Monetary Policy Highlights: RBI MPC Meet outcome June 2022, Reserve Bank of India (RBI) Governor Shaktikanta Das is all set to announce the outcome of the monetary policy meeting on Wednesday.
(By Ravi kant Kumar)
RBI MPC Meet outcome June 2022: Reserve Bank of India (RBI) Governor Shaktikanta Das announced to raise repo rate by 50 basis points in the the monetary policy meeting on Wednesday. The MPC meet was scheduled for June 6-8. Experts largely predict 35-50 bps hike in repo rate.
Zee Business Managing Editor Anil Singhvi had said the rate hike is inevitable, but what is crucial is by how many points it is increased and what RBI governor says in his June policy commentary. Stay tuned for live coverage on RBI monetary policy announcements...
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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.
"The current round of hikes could make the buyers apprehensive and they might as well adopt a wait and watch attitude. But on a positive note, the continued wage and job growth in varied sectors will provide a cushion in the short term for the purchasing decisions. The all-time low home loan interest regime in the recent past had boosted the housing demand and also enabled a robust recovery in the real estate sector post the pandemic,"Lincoln Bennet Rodrigues, Chairman & Founder, The Bennet and Bernard Company, known for luxury holiday homes in Goa.
Today, people feel the inherent need to make progressive lifestyle changes to lead a more balanced and healthy life. We are hopeful that an improved homebuyer attitude and preference for owning a house will support the housing market and we expect that consumer demand will remain buoyant in the near term. The rate hike won’t have significant impact as home loan interest rates have already gone down substantially in the recent past and buying decisions may not be altered by these marginal changes. The outlook for India Inc looks positive with higher affordability and disposable income in the hands of new-age investors- Rodrigues
We have observed a robust comeback in residential sales and launches in the last couple of quarters. From a real estate perspective, this hike in the policy rate comes as a hurdle as home loan rates will increase, putting a dent on the homebuyer's sentiments. Any increase in the interest rate will further impact the costs of doing business and hence the move will hurt business sentiment too as the economy is still recovering from the pandemic. However, there has been a fundamental change in buyers expectations and attitude towards homeownership and this will largely withstand marginal fluctuations in lending rates. It also goes without saying that the real estate industry's perennial hope is fixed on lower interest rates as it improves affordability. There is still pent-up demand and even after the repo rate hike, affordability is still high and the home buyer needs to take advantage of that in the short term. Going forward, we hope that the government continues to pay attention to the requirements of the sector, which is one of the largest employers in the country. We believe the long-term structural growth story of India is intact and will continue to drive overall demand and consumption for key sectors of the economy. Ramani Sastri - Chairman & MD, Sterling Developers Pvt. Ltd.
RBI's projections of GDP growth rate of 7.2% and inflation of 6.7% for FY23 reflect a realistic monetary policy. The higher inflation projection indicates that the central bank recognises the seriousness of inflation and the 50 bp repo rate hike is a message that they are determined to anchor inflation expectations. The Governor's remark that " the economy remains resilient and recovery has gathered momentum" is bullish from the market perspective. The bond market's positive response with bond yields rising stems from the absence of CRR hike- V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services
RBI retains its growth projection at 7.2 per cent for current fiscal, raises inflation forecast to 6.7 pc for FY23 from an earlier estimate of 5.7 pc. RBI focussed on orderly government borrowing programme, says Governor.
Key thing to know about RBI June policy announcement.
RBI hikes interest rates by 0.25%, raises repo rate by 50 bps and reverse repo rate has been hike by 0.25% to 3.6%
Russia-Ukraine has led to inflation worldwide. RBI plans to tame inflation without controlling growth, says RBI governor
In line with the expectations, RBI has increased repo rate by 50 basis points in June policy on Wednesday.
Up to 50 bp rate hike by the RBI is already discounted by the market and, therefore , the central bank's guidance on inflation and rates will be more important. Inflation for FY23 is likely to be around 6.8% forcing the RBI to sound hawkish. For the market, more important than today's policy announcement would be the US inflation data to be released on Friday. If the US inflation print comes higher than expected, markets will start discounting a more aggressive Fed and this can cause sharp market correction. On the other hand, if the data indicate inflation peaking and potentially drifting down, the US market will bounce back providing a lift up for global markets. One predictable trend in India is that FPIs will continue to sell on every rally. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Zee Business Managing Editor Anil Singhvi explains how market is likely to behave post credit policy. He also speaks at FIIs data and positives in the current market.
RBI will try to tackle two issues in its upcoming monetary policy- tackle inflation and ensure that the rupee does not depreciate too much against the dollar. The last time when RBI revised its inflation target, crude was at $100 per barrel, and now it's trading at $120 per barrel, suggesting a risk of inflation flaring up is high. Keeping these facts like rupee depreciation and high inflation rate, I expect RBI to hike the interest rate by 50bps.- Mohit Batra, Founder & CEO of MarketsMojo
The rate hike is inevitable as expected in the June policy meeting of the Reserve Bank of India (RBI), said Zee Business Managing Editor Anil Singhvi. The market has prepared itself for a rate hike of between 0.5 - 0.75 per cent, however, the key monitorable would be Governor Shaktikanta Das’ commentary.
Experts have predicted a hike in the range of 35-50 bps hike in repo rate. RBI Governor Shaktikanta Das had already hinted at a hike in the rate last month, when the central bank resorted to surprise increase in rate hike in order to tame inflation
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