RBI MPC meeting Highlights: RBI settles for 25 basis points repo rate hike to 6.5%

“RBI decision to hike the rate was in consonance with the expectations. Continuing strong job data from Fed has made monetary policy making a delicate balancing act for emerging economies central banks. Beyond the rate hike, there are a bouquet of policies that attend the micro structure of the market. The proposal to address the issue of penal charges on services will bring a rule based regulation. The initiatives on climate risk will improve compliance, capital budgeting and financial disclosures for banks. Providing further impetus to TReDS platform in terms of further augmentation of activities and allowing lending and borrowing government securities will add depth and aid price discoveries across markets,” Dinesh Khara, Chairman, SBI. 

RBI MPC LIVE: Reactions

"This is a much-required move from RBI especially for the NBFC sector. Currently, there are no clear guidelines on the manner how NBFCs can charge penal interest or penal charges.  Implementing a transparent framework would improve consumer protection," Abhay Bhutada, MD, Poonawalla Fincorp.

RBI MPC: Reactions

"RBI’s has increased the repo rate by 25 bps. It’s the sixth hike over the months, and it clearly explains that how stubborn the inflationary trends have been. It will effect the sector but as the inflation is high so this was a step which was expected. The whole last year the repo rates have been hiked to save the economy form inflation, but still we have not achieved that. The rates are nearly somewhere close to their peak. This has been the first repo rate after budget so investors are still understanding the budget, and the repo rate hike will be another step which will affect them. All the consumer loans will be costlier. Additionally, the strain of increased interest rates and EMIs is put on borrowers. Prepaying the mortgage as soon as the money is available can work wonders and reduce the length of your ballooning debt," Nitin Gagneja, founder of Flying Vertex Studio.

RBI MPC: Reactions

"With inflation still prevailing, the repo rate hike was expected. On the other hand, it also has to be considered that it will widely effect businesses. This is the sixth hike on the repo rate. As the rate has been hiked by 25 bps, this could make the buyers apprehensive and they might adopt a wait-and-watch attitude in real estate sector. Most importantly, when seen on a positive note, in varied sectors, the continued wage and job growth will provide a cushion in the short term for purchasing decisions. In the covid times, low home loan interest regime boosted the housing demand and enabled a robust recovery in the real estate sector post pandemic. The overall outlook for India Inc looks positive with higher affordability and disposable income in the hands of new-age investors. Investing in the commercial real estate sector is a good option at present as it can shield against direct impact," Shiv Parekh, Founder hBits, a fractional real estate company.

RBI MPC LIVE: Measures announced today 

1) Among the measures announced on Wednesday was allowing lending and borrowing of government securities or G-secs with a view to "provide investors with an avenue to deploy their idle securities, enhance portfolio returns and facilitate wider participation".

2) RBI restored market hours for the Government Securities market to the pre-pandemic timing of 9 am to 5 pm.

3) On the rupee, Das said it has remained one of the least volatile currencies among its Asian peers. The depreciation and the volatility of the Indian rupee during the current phase of multiple shocks is far lower than during the global financial crisis and the taper tantrum.

4) The current account deficit (CAD), which stood at 3.3 per cent in the first half of 2022-23, is expected to moderate in the second half and "remain eminently manageable and within the parameters of viability". Das also said draft guidelines for the levy of penal interest on advances will be issued for comments.

5) With UPI becoming hugely popular for retail digital payments in India, the RBI has proposed to permit all inbound travellers to India to use UPI for their merchant payments (P2M) while they are in the country. "To begin with, this facility will be extended to travellers from G-20 countries arriving at select international airports," he said.

6) The RBI will also launch a pilot project on QR Code-based Coin Vending Machines (QCVM) in 12 cities. These vending machines will dispense coins against debit to the customer's account using UPI instead of physical tendering of banknotes. This will enhance the ease of accessibility to coins.

RBI slows pace of interest rate hikes but hints at more to come

The Reserve Bank of India slowed the pace of interest-rate increases for the second straight time when it on Wednesday expectedly increased borrowing cost by 25 basis points but hinted more to come as core inflation remained high. The RBI's six-member Monetary Policy Committee voted 4-2 to raise the benchmark repurchase or repo rate to 6.50 per cent and retain its stance of withdrawing accommodation, which was adopted early last year.

RBI MPC LIVE: Reactions

“RBI delivered a 25bps rate hike, quite expected by the markets, though the decision was not unanimous, with 2 members of the MPC dissenting on the repo rate hike. The central bank maintained its policy stance on the withdrawal of accommodation, deviating from the market expectations of a change in stance. RBI emphasized that further monetary policy action is warranted given that core inflation remains sticky and though headline inflation has moderated, it will continue to remain above the 4% target. RBI projections state an average CPI of 5.7% for Q4 and 6.5% for FY23. For FY24, RBI sees inflation averaging 5.3%, versus the market consensus of 5%. On growth, RBI portrayed a resilient economy, with GDP growth projections for FY23 upgraded to 7% from the prior estimate of 6.8%. For FY24, RBI remains optimistic at 6.4% versus the market consensus of 6%.

Although real rates have turned positive and inflation has moderated, RBI is symbolically choosing price stability over growth, taking a leaf out of the books of other major central banks, wherein they have articulated the need and intent to deliver further rate hikes. It seems to us that RBI wants to keep its cards close to the chest and will not like to convey a change in stance unless global central banks like Fed portend a terminal interest rate. Notwithstanding RBI’s relatively hawkish stance, we do not see RBI delivering another rate hike in April. After the 25bps hike today, we expect a long pause from the RBI to allow for the cumulative 250 bps increase in the repo rate to filter through the economy. Needless to mention, interest rate hikes work with a lag effect of 2-3 quarters, so its full impact on growth has yet to be seen,” Amar Ambani, Group President & Head – Institutional Equities, YES Securities. 

RBI Governor Shaktikanta Das on lenders' exposure to Adani Group

"Indian banking sector, including NBFCs, continues to be resilient and strong," said RBI Governor.

RBI MPC LIVE: Reactions

"The 25 basis points rate hike by the Reserve Bank of India today has been in line with the consensus expectations. We, however, felt the possibility of a rate pause this time around was at least 50%. On the inflation front, the major softening in India post April 2022 was there main reason for us to expect a standstill in this policy. On the contrary, the Reserve Bank of India seems to have been more bothered about the high and sticky core inflation for more than a year. More importantly, the continued rate hikes by the Bank of England, the ECB, and the US Federal Reserves and the implications of these in the foreign exchange market influenced the decision of the Reserve Bank of India to go for another rate hike. Unless there is an unexpected flare in inflation, we would expect the Reserve Bank of India to maintain an unchanged policy rate for the remainder of 2023. This would be positive both for the debt and equity markets," Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stock Brokers.

RBI MPC LIVE: Reactions

"We understand that despite RBI's sincere efforts, inflation is still a cause of concern, but at the same time millions of first time homebuyers across the country are looking at stability in interest rates, to plan there further course of action while sitting on the edge to decide on their future of home buying process. The bank's recent hike of 25 basis points will surely help in controlling the inflationary concerns, but we are also looking forward to stable interest regime for a long term period to help millions of first times buyers across the country. In our view the present hike should not cause much concern, as the quantum is still relatively less," Amit Modi, Director, County Group, President CREDAI (WUP).

RBI MPC LIVE: Reactions

"The RBI as expected hiked the repo rate by 25 bps. The split mandate of 4-2 was also as expected. The stance too was unchanged which is in line with the excess liquidity continuing to be tightened. We see the RBI remaining concerned about inflation, especially core inflation. We expect inflation to average around 5.2% in FY2024 with adverse risks to growth likely to increase. The RBI will likely become increasingly data-dependent and look at the impact of past rate hikes on inflation-growth dynamics. We expect the RBI to pause from the next policy onwards with a likely shift in stance to neutral as the liquidity tightens
further over March-April," Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities.

RBI MPC LIVE: Reactions

"RBI has made a smart move by announcing a minimal increase of 25 bps in repo rates leading it to 6.50%. Though the hike is a bit disheartening as no major push was given to the real estate sector in the Union budget, the market trends are expected to keep the popularity of projects going upwards. The continuous hikes in repo rates have resulted in an increase in home loan interest rates. However, buyers’ incline has been towards both residential and commercial projects, stabilizing the real estate sector. RBI is striving to balance global inflation with repo rates, and the hikes are expected to be halted anytime soon in future," Ashwani Kumar, Pyramid Infratech.

RBI MPC LIVE: Reactions

"The RBI’s stance to stamp out inflation continues to be the foundation of its repo rate policy, as we witness the first repo rate hike in the new year a week after the Budget presentation. The RBI hikes the repo rate to 6.5% by 25 basis points. The marginal repo rate hike was expected by industry players. The real estate end-users might face a short-term effect on home loan mortgage rates, but it would not cause much of a consequence on the overall scheme of things and demand for housing," Yash Miglani, MD, Migsun Group.

RBI MPC LIVE: Reactions

"The RBI has announced another 25 basis point increase in repo rates, in an effort to reduce inflation. The increase in repo rates from 6.25% to 6.50% is fairly minimal and may be easily curtailed because it is still quite low in comparison to other parts of the world experiencing a similar situation. The hike was widely anticipated, and the RBI handled it admirably by only making a little adjustment. This may have a short-term impact on homebuyers, but it will have a long-term favourable benefit. The real estate sector has been performing well as a result of a high demand for Grade A developments, and this trend is projected to continue," Narayan Bhadana, MD, 4S Developers.

RBI MPC LIVE: Reactions

"The RBI's small raise in repo rates of 25 basis points was widely anticipated, and the organisations handled it properly, avoiding any significant variation in total value. Middle-income groups or homebuyers in the inexpensive category may face a little stumbling block, but the overall expansion of the industry will be unaffected. According to recent trends, the real estate sector has been performing fairly well, and this government decision will help it grow even more. Though the interest rate of 6.50% will slightly burden homebuyers, the economy would be strengthened by the measure. We hope that this increase does not create a significant gap between builders and buyers," Rajesh K. Saraf, Managing Director, Axiom Landbase Pvt Ltd.