RBI Monetary Policy: Industry Experts React, Know Who Said What After MPC Decisions

The Reserve Bank on Thursday marginally revised upwards the economic growth projection for the current fiscal to 6.5%, from its earlier estimate of 6.4%.

Unveiling the first bi-monthly monetary policy of 2023-24 fiscal, RBI Governor Shaktikanta Das said the GDP growth in the first quarter of 2023-24 is expected at 7.8%.

The growth for the second, third and fourth quarter of the current fiscal year has been projected at 6.2%, 6.1% and 5.9%, respectively.

The RBI also hit the pause button and decided to keep the key benchmark policy rate at 6.5% even as inflation is trending above its tolerance level.

The rate hike has been paused after six consecutive rate increases aggregating to 250 basis points since May 2022.

The World Bank in its latest ‘India Development Update’ (IDU) has slashed the Gross Domestic Product (GDP) forecast to 6.3%, against the earlier estimate of 6.6% in 2023-24.

RBI MPC: Industry Reacts

Shishir Baijal, chairman and managing director, Knight Frank India, said, “Today’s pause in the rate hike cycle is a very positive and welcoming move by the RBI. The consumer inflation in the economy has sustained above the RBI’s upper threshold of 6% and is more likely to remain sticky in the next few months following the recent crude oil production cut by the OPEC countries and Russia. Consumer inflation arising from such events is beyond the central banks’ control. Any further hike in the repo rate and lending rates along with sustained inflation could potentially reduce the spending capacity of the consumers which in turn can dampen India’s economic growth. Therefore, the RBI’s decision to pause its rate hike cycle is supportive of economic growth. India’s economy is expected to grow at 6.5% in FY24; which is an optimistic outlook for the economy amidst ongoing global financial market volatility and economic slowdown anxieties.

From a real estate market perspective, the sector has weathered multiple home loan interest rate increases from a low of 6.5% to 8.75%, supported by favourable house purchase affordability and the strong desire towards home ownership. Therefore, a pause in any further rise in the lending rates should support the existing growth momentum in the housing sector.”

Boman Irani, president-elect, CREDAI National

“We laud the RBI for maintaining the repo rate, in a move that is bound to go a long way in sustaining the sales momentum that we’ve witnessed in the residential segment. Given the potential adverse impact of a hike in repo rate and its ripple effect on both Housing demand and supply, we, at CREDAI, are extremely pleased and welcome the central bank’s decision. This move would provide a further boost for the affordable and mid income housing segments, in particular. Coupled with the Central Government also hiking its outlay for the PMAY program during this year’s Budget, we expect the demand for affordable housing to grow in the upcoming quarters.

Sujan Hajra, chief economist and executive director, Anand Rathi Shares and Stock Brokers

“With inflation still elevated and recent rate hikes by most major central banks, chance of a 25-bps rate hike was considerable. The RBI opting for a pause seems to suggest that the central bank expects softer inflation and growth. With this, it seems that the RBI has come to the end of rate hike for this cycle. Unless there was a big surprise either on inflation or growth, we expect the RBI to remain in pause mode during 2023.

Sonam Srivastava, founder and CEO, Wright Research, said, The RBI Governor’s announcement regarding the projection of inflation and GDP growth for FY24 shows a cautious approach towards the country’s economic recovery. The focus on the gradual and sustainable “withdrawal of accommodation” is essential for ensuring that the current growth momentum is maintained in the long run. The decision to maintain the repo rate unchanged is a positive sign for the banking and NBFC sectors, and it is expected to benefit other sectors such as real estate and infrastructure. However, the persistent inflation and global banking crisis remain areas of concern, and it is crucial to monitor the overall impact of the past rate hikes.

Jyoti Prakash Gadia, managing director, Resurgent India, said, “The RBI has today sprung a big surprise by keeping the repo rate unchanged . Despite the volatility and uncertainties, the decision of RBI to maintain a status quo in policy rates is a very bold step which indicates the RBI ‘s resolve to assess the situation and support growth in the current growth inflation trade-off.

RBI has chosen to tread an independent path despite the global headwinds and challenges and it is a welcome step to create the requisite atmosphere for growth and revival of the economy which is still at a nascent stage .

This pause in policy rate change shall provide the much needed breather to the businesses and entrepreneurs to now grab this opportunity for increasing production and investments both new ventures and expansion of existing enterprises. With this potential to grow, RBI has rightly revised upwards the annual growth target from 6.4% to 6. 5% which now seems achievable for the year 2023-24.

With improved PMI and GST indicators and an increased expected Rabi production the RBI is hoping for easing of supply side constraints .This is further expected to check inflation and the target of the same therefore has been revised downwards to 5.2%.

The underlying stance of withdrawal of accommodation has however not been changed and RBI continues to indicate its intent to tame inflation and is open to any future change in repo rate as the need arises .

The RBI has also indicated its continued approach towards adaptive liquidity policy and measures to ensure stability of the financial system.

Overall a bold and pragmatic policy to assess the situation to bolster growth and long term revival of the economy.

Amar Ambani, Head of Institutional Equities, YES Securities

“RBI unanimously decided to stand pat on the policy rate, positively surprising the markets, though, some market participants did pencil in a pause at the April MPC meeting. The central bank justified the pause, citing global economic headwinds and the rationale that the cumulative rate hikes of 250bps will certainly work with a lag to arrest inflation. However, RBI cautioned that it is open to policy action if inflation persists above the tolerance level. Pertinently, it maintained its stance on the withdrawal of accommodation. On inflation projections, FY24 CPI is projected to average 5.2%, when compared with the earlier estimate of 5.3%. On growth, RBI emphasized the resilience of the economy and sees FY24 GDP expanding at 6.5%, marginally higher than the earlier estimate of 6.4%. We see that RBI is over-optimistic on growth given that consensus projections call for 6% GDP growth for FY24. On the interest rate trajectory, we now clearly see 6.5% as the terminal repo rate and effectively now rule out any rate hikes during this year, notwithstanding the rhetoric from RBI regarding the possibility of further policy action. With India’s real rates projected to remain positive around 130bps for FY24 and emerging global concerns about financial stability, we reckon that RBI will likely sit tight on the policy rates for quite some time.”

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