RBI Monetary Policy Outcome: On expected line, a welcome step—Industry leaders, market experts hail central bank's decision

The Reserve Bank of India (RBI) on Friday maintained status quo around lending rate in line with the expectations of the economists and experts. With this, the central bank kept lending rate unchanged at a record low for the 11th time in a row in order to support economic growth despite inflation edging higher due Russia-Ukraine war. The RBI's monetary policy committee held the lending rate, or the repo rate, at 4% and reverse repo rate, or the key borrowing rate, at 3.35% as it kept the stance accommodative. 

Meanwhile, the RBI also slashed economic growth projection to 7.2 per cent for the current fiscal from 7.8 per cent estimated earlier amid volatile crude oil prices and supply chain disruptions due to the ongoing Russia-Ukraine war. 

See Zee Business Live TV Streaming Below:

Besides, the RBI on Friday extended the rationalized home loan norms by another year till March 31, 2023. 

Here is what Industry leader, economist and market experts make of RBI monetary policy outcome

Dr. Ravi Singh, vice President and head of Research, ShareIndia 

RBI monetary policy has fallen much within the expectations of a dovish stance in view of the current crisis and maintains it’s pro-growth outlook. The geopolitical scenario on the global front and soaring inflation have led the RBI to lower its growth forecast to 7.2 per cent from 7.8 per cent and an increase in the inflation forecast for the current FY. 

However, the strong Indian forex reserves and a stable financial sector is providing some relief to the dismay. The unchanged repo rate will provide more elbow room to the homebuyers and help in the revival of the realty sector. To curb the uncontrollable inflation, RBI has increased the reverse repo rate and sharp increase in the inflation projection has hinted towards a possible tightening in the near future.  

Prasenjit K. Basu – Chief Economist, ICICI Securities   

The MPC sensibly decided to keep monetary policy accommodative despite inflation being marginally above its tolerance band. Two good reasons justify the policy: (a) inflation is high partly because of (external) supply shocks, so reducing aggregate demand (through monetary tightening) will not address the issue; (b) there is a considerable output gap, with the economy having contracted 6.6% in FY21, and estimated to have grown 8.9% in FY22 (far from closing the gap, in an economy with potential growth of 7% annually). 

Staying accommodative is thus the right approach: loan growth needs to accelerate to enable a rebound in domestic demand, but the RBI will also withdraw accommodation tactically if inflation gets too far from the target. 

Parth Nyati, Founder, Tradingo

The RBI is continuing its growth-focused policy where it keeps policy rates unchanged with an accommodative stance. Contrary to most of the central banks across the globe, it remains dovish despite worries of inflation, however, the RBI is mindful of the rise in commodity prices, especially post Ukraine War and thus decided to move the stance from ultra-accommodative to accommodative. The withdrawal of accommodation in the future will be gradual to ensure that inflation remains within the target and economic recovery & growth sustains.  In the near term, it is positive for the market as there is no negative surprise, however, if inflation goes out of control and RBI takes any impulsive action then it will be a major negative therefore it will be interesting to see how RBI tackles the inflation monster without hurting the growth. As the policy is growth-focused, the consumption stocks are likely to do well.

Shivam Bajaj, Founder & CEO at Avener Capital.
The MPCs decision to maintain its status quo is in line with expectations. RBI has emphasized on the strong buffers of forex reserves, which may act as a cushion amidst geopolitical tensions and exchange rate volatility. The reaction of the market on the downward revision in growth rate to 7.2% and an upward revision in inflation rate to 5.7% is to be kept an eye on. It will also be interesting to see how the economy tackles its supply side constraints to mitigate the inflationary pressures.

Subhash Goel, chairman & MD, Goel Ganga Developments 

RBI’s effort to keep the repo rate unchanged and maintain an accommodative stance is a welcoming step. This will continue to keep the home loan rates in the lower band, thereby fostering growth and pushing the market in a positive direction. Lowered home loan rates will also help renewed investor interest in the sector, as real estate is a prudent option for risk-averse investors.  Meanwhile, the governing agencies should try to control inflation, otherwise, raw material prices will jump upwards and affect the industry.  

Ravi Singhal, Vice Chairman, GCL securities Limited 

RBI monetary policy is as expected, with the accommodative stance remaining in place. However, the reverse repo rate has been raised, sucking liquidity from the market, but the outlook remains positive because the accommodative stance remains in place. 

Ridhima kansal, Director, Rosemoore  

The step by RBI to keep the repo rate unchanged is a prudent initiative, as it will enable banks to continue offering credit at low rates, thereby helping retail consumption. With receding cases, expansive vaccination drives, and a healthy economic outlook, India’s retail sector looks upbeat in FY 23. Meanwhile, the government should try to control inflation, because if not rein, it can soften demand. 

Rajesh Bhatia, MD&CIO, ITI Long-Short Equity Fund  

Monetary policy outcome was largely in line with our expectations. RBI highlighted emerging downside risks to growth while also pointing to upside pressure on inflation trajectory. We had anticipated a possible tinkering in the reverse repo rate, which has now been rendered defunct with the introduction of the new Standing Deposit Facility (SDF) rate as the floor for the Liquidity Adjustment Facility (LAF) corridor. Going forward, we expect that the growth risks would offset inflation concerns for coming months with the first rate increase possibly in Q3. Adverse oil price movements form key risk to our view. 

Ramani Sastri, Chairman & MD, Sterling Developers Pvt. Ltd. 

RBI's decision to keep policy rates unchanged will continue to improve sentiments in the real estate sector and signals the government’s focus on driving consumption. This will also provide the required fuel for the growth of the economy along with the real estate sector, which is allied with several other industries. 

For home buyers, this decision will help reinstate confidence and further access to affordable home loans and help foster housing demand. The low interest rates have been a crucial factor in the revival of the demand in the real estate sector in recent times and hence upsetting the current momentum would have been highly detrimental to the overall economic recovery. 

Over the last few quarters, there has been a fundamental change in buyers’ expectations and attitude towards homeownership, which has resulted in the residential real estate sector perform exceedingly well across all segments. It is imperative for the government to pay special attention to the real estate sector and have provisions for its well-being in the near future. 

Ashish Jain, Managing Director, Star HFL  on the RBI Monetary Policy

Once again, RBI has rightfully decided not to rock the boat as the economy has started to emerge from the clutches of Covid-19 pandemic. Less Accommodative stance and narrowing of LAF is attributable to the global uncertainty and effects on fuel prices. One feels that this would be ultimate/penultimate event of keeping benchmark lending rate unchanged. We can expect northward movement from hereon as the focus should now shift to containing expected Inflationary pressures. Home borrowers having floating rate loans should grace for increase in rate of interest, consequently resulting in either increase in emi or in loan tenure. One can consider the pros and cons of shifting to fixed rate regime after careful consideration on cost-benefit post scanning the industry offerings