(Reuters) – The Indian central bank’s key lending rate was held steady at a second straight policy meeting on Thursday, as widely anticipated.
The monetary policy committee (MPC), which has three members from the Reserve Bank of India and three external members, kept the repo rate steady at 6.50%.
All 64 economists in a Reuters poll taken between May 16 and 29 expected no change in rates.
COMMENTARY:
V K VIJAYAKUMAR, CHIEF INVESTMENT STRATEGIST, GEOJIT FINANCIAL SERVICES LTD, KERALA
“Even though the MPC’s rate decision and stance have come on expected lines as pause and withdrawal of accommodation respectively, the Governor’s commentary can be interpreted as positive.”
“The central bank’s projection of FY24 CPI inflation has come at 5.1%, lower than 5.2% projected in the previous meeting. This indicates that the MPC has come to the end of this rate hiking cycle.”
“If the monsoon is normal and the global scenario is favourable, the MPC may think about a rate cut by end CY2023 or early 2024. From the stock market perspective, this is positive.”
PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI
“RBI will be nimble in liquidity management, will ensure orderly completion of the government borrowing program this year. In our view, the MPC has strived to maintain its hawkish pause.”
“We believe markets will hereon take their cues from their assessment of the durability of fall in headline inflation.”
“We expect RBI to remain on pause through FY24 if external headwinds to India’s growth don’t manifest as feared.”
SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM
“The central bank could keep rates unchanged through the year with the chance of any rate cuts in FY24 seeming slim for now.”
“We expect both growth and inflation to be lower than the RBI’s estimates — growth at 6% and inflation to average at 4.8%-5% in FY24.”
“The policy decision does little to move the needle in the bond market as it was broadly in line with expectations.”
RADHIKA RAO, SENIOR ECONOMIST, DBS BANK, SINGAPORE
“Along our expectations, the benchmark rate and stance were held unchanged, as the MPC prefers to stay on wait-and-watch mode to gauge the fallout of weather conditions on the price trend before considering a pivot to easing. This comes against the backdrop of the Australian weather bureau turning up the probability of an El Nino occurrence and action from the global central banks reflecting vigilance on inflation as well as financial stability risks.”
“As the RBI maintained its strong GDP projections, these supportive recovery prospects also lower the urgency for a quick turn in the policy direction.”
“A pause will allow for the lagged impact of past hikes to filter through to the real economy, with policymakers keen to keep real rates in positive territory. Liquidity swings will be met via need-based money market operations rather than durable tools.”
SUJAN HAJRA, CHIEF ECONOMIST AND EXECUTIVE DIRECTOR, ANAND RATHI SHARES AND STOCK BROKERS, MUMBAI
“In the wake of a greater-than-anticipated decline in inflation in the recent past, it was anticipated that the monetary policy would shift from a liquidity withdrawal to a neutral stance. However, the MPC has decided to maintain the current stance by a majority vote. This is due to the fact that the demonetisation of Rs. 2,000 banknotes has significantly contributed to the recent increase in liquidity.”
“RBI’s projections indicate that its inflation target of 4% will be exceeded each month of the current fiscal year. While the continuation of the RBI’s policy stance is somewhat disappointing, the central bank’s cautious approach in light of upside risks, such as the potential impact of El Nino on India’s monsoon and the continuation of monetary tightening by the world’s major central banks, appears justified and well-articulated.”
“Therefore, we anticipate that the monetary policy announcement will have no effect on the financial markets.”
SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI
“RBI staying on a pause and maintaining its stance was in line with expectations. The RBI remains cautious on the inflation trajectory especially as inflation will remain above the 4% target for the foreseeable future.”
“The RBI continues to estimate average inflation slightly above 5% for FY2024 while GDP growth has been retained at 6.5% though we believe there are some downside risks to growth. We believe that rate cuts will be contingent on significant divergence in growth-inflation prospects. We maintain our call that the RBI will be on an extended pause.”
GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI
“Encouraged by the recent softening of retail inflation as well as easing global inflationary impulses, in line with our expectations, MPC decided to maintain pause and retain stance of withdrawal of accommodation”.
“Healthy domestic growth impulses and receding inflationary risks in recent months amid strengthening of external sector dynamics are encouraging. We see MPC remaining on a prolonged pause in CY23 and see room for MPC to cut policy rate by 25 bps in Q4FY24, led by softening inflationary impulses.”
(Reporting by Navamya Ganesh Acharya, Ashish Chandra, Nishit Navin and Rama Venkat; Editing by Sonia Cheema and Eileen Soreng)
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