The central bank’s cautious stance reflects its readiness to navigate these uncertainties and mitigate any downside risks.
Siddarth Bhamre, Head of Research at Asit C Mehta Investment Interrmediates: RBI maintained India’s GDP growth forecast @ 7.2% on back of steady discretionary spending in urban areas and turnaround in rural demand. Governor mentioned that global economy is expanding though it’s quite uneven. With growth driven mainly by domestic consumption, India has improved its resilience against the global shocks if they emerge.
Inflation forecast for FY24-25 has remained unchanged at 4.5% but the ride will be bumpy. Next two quarters inflation will be higher than earlier estimates due to erratic food inflation and benefits of base effect waning out.
Looking at India’s equation of growth and inflation and taking into consideration the confidence of RBI, we believe RBI may not dance to the tune of FED and will concentrate on domestic data points to take further action on monetary policy.
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank: The RBI expectedly kept rates and stance unchanged with unambiguous focus being retained on inflation. With growth remaining robust the MPC still has room to hold on to policy stance to get confirmation on the disinflationary trend. We continue to expect scope for change in stance in the October policy with rate cuts beginning from December. The prospects of simultaneous change in stance and rate cuts could increase depending on how domestic inflation and global environment transitions.
Deepak Ramaraju, Senior Fund Manager at Shriram AMC: As a fund house, we expected the status quo on the interest rates and the withdrawal of the accommodative stance. Inflation continues to be the number one priority followed by credit growth and deposit mobilization by the banks. RBI continued to keep the inflation forecast for FY 25 at 4.5%. Global factors such as rising interest rates in Japan, geo-political instability in the Middle East, rate cut by the Bank of England and timing of rate cut by the US Fed will influence the future monetary policy stance of RBI says.
K V Srinivasan, Executive Director and CEO, Profectus Capital Ltd: As expected, the RBI has maintained policy rates at existing levels with no change in stance of withdrawal of accommodation. The RBI wants to ensure that inflation comes down to its permissible range before reducing policy rates. Nonetheless, The RBI has ensured sufficient liquidity. From an MSME perspective, it’s better to have a stable interest rate scenario, and the RBI’s long pause in cutting interest rates is appropriate in the given macro environment.
Anu Aggarwal, Head – Corporate Banking, Kotak Mahindra Bank: RBI’s decision to hold the repo rate at 6.5% for the ninth consecutive time was on expected lines amid persistent inflationary pressures with June inflation coming in at 5.1%, and food in particular running away at 8.4%. We need to watch out for Fed action in September when a rate cut is near certain which will set the stage for our own likely cut by December. RBI’s commitment to inflation target of 4% while our GDP growth is on track I seems the right thing to do.”
Ashwani Dhanawat, Executive Director and Chief Investment Officer, Shriram General Insurance: The Reserve Bank of India (RBI) has maintained the repo rate at 6.5%, marking the eighth consecutive review since February 2023 without changes. This steady stance represents the second-longest period of rate stability in the past 25 years, reflecting the RBI’s commitment to a stable economic environment.
RBI’s decision to keep the repo rate unchanged demonstrates a balanced approach to nurturing economic stability and growth. By prioritizing price stability and supporting investment, RBI aims to create a resilient economic environment capable of sustaining growth and withstanding external shocks. This prudent policy stance is expected to bolster investor confidence and contribute to India’s economic resilience in the coming year.
However, RBI is aware of potential risks. Geopolitical tensions, volatility in international financial markets, and geo-economic fragmentation pose significant challenges. The central bank’s cautious stance reflects its readiness to navigate these uncertainties and mitigate any downside risks.
Parijat Agrawal, Head – Fixed Income at Union Mutual Fund: As expected, the Monetary Policy Committee (MPC) kept the rates and stance unchanged. The MPC kept the stance unchanged due to ample systemic liquidity. The focus remains on bringing headline inflation on a durable basis to 4%. Although core inflation is in disinflationary trend, volatile food inflation is a cause of worry. Growth remains robust as visible in high frequency indicators. Global economic slowdown and financial market volatility is something which the MPC may have to address going forward. The evolving growth inflation dynamics point towards rate cut beginning from December policy.“
Sandeep Yadav, Head-Fixed Income, DSP Mutual Fund: Central banks are not speculators. They are insurers. We repeat this statement we made last year.
We stated this last year (2023) when markets expected US CPI to fall and FED to do multiple rate cuts. At that time Powell mentioned risks of early rate cuts were far more than delayed rate cuts. If fed cut early and inflation rose, the damage to economy would be far worse than if fed cut late and growth fell. And how correct was FED, as inflation took about a year to fall closer to projected levels.
Todays’ RBI policy is in the same vein. If RBI were to sound dovish today, and inflation (or global yields) were to rise thereafter, then RBI would have played all its cards too soon.
The base case expectation is that the inflation and growth would come down globally, and in India. However, RBI needs to be aware of what-if scenario. What-if inflation and growth do not come mimicking US in 2023?
Sometimes Central bankers’ job may seem thankless. If growth indeed falls along with inflation, then a 20/20 hindsight would show that RBI has made a mistake today. However, it is more prudent for RBI to hedge against tail risks of higher inflation.
However, unlike central banks, we need to speculate to generate returns for our investors. We expect these tail risks of higher inflation to vanish in coming weeks. We expect most central bankers to be dovish – and we expect RBI will be too. We remain long on bonds.
- P. Nandakumar, MD & CEO at Manappuram Finance. Today’s MPC decision to keep the repo rate unchanged at 6.5% did not come as any surprise as the rate setting committee once again reiterated its stand on containing inflation without sacrificing growth. More importantly, the apex bank has kept the GDP growth forecast for the current fiscal unchanged at 7.2% which underscores its stance of `withdrawing accommodation’ while supporting growth. The MPC has decided to keep the repo and other policy rates unchanged in view of its inflation forecast for the current fiscal pegged at 4.5%. Though headline CPI print is moderating, the apex bank has decided to keep a strict vigil on underlying price pressures in view of the higher food prices. The key takeaway from the Policy is that a rate cut may be three or four quarters away depending on evolving headline inflation print and economic growth.
