The RBI’s monetary policy committee on Friday decided to keep the repo rate unchanged at 6.5 per cent unanimously. This is the fourth time in a row that the central bank has paused the key interest rates. The RBI has retained the FY24 GDP projection at 6.5 per cent, and kept inflation projection unchanged at 5.4 per cent for 2023-24.
Presenting the fourth bi-monthly monetary policy of FY24, RBI Governor Shaktikanta Das on Friday said, “Our monetary policy remains aligned to focus on 4 per cent inflation target.”
The RBI MPC also kept the SDF unchanged at 6.25 per cent, and MSF and Bank Rates maintained at 6.75 per cent. The SDF is the lower band of the interest rate corridor, while the MSF is the upper band.
On the inflation outlook, the RBI governor said the overall inflation outlook is clouded by uncertainty due to a fall in kharif sowing, lower reservoir levels, and volatile global food & energy prices.
He said global headline inflation could remain high for a longer period than estimated, in contrast to global trends, domestic eco activity exhibits resilience on the back of strong domestic demand
On the economic situation, Das said India is poised to become the new growth engine of the world. The external sector remains manageable. The twin balance sheet problem has now turned into a twin advantage. “However, we need to be vigilant. Risks and vulnerability can grow even during good times.”
“Macroeconomic stability and inclusive growth are the fundamental principles underlying our country’s progress. The policy mix that we have pursued during recent years of multiple and unparalleled shocks has fostered macroeconomic & financial stability…The twin balance sheet stress that was encountered a decade ago has now been replaced by a twin balance sheet advantage with healthier balance sheets of both banks and corporates,” he said.
What Experts Say
Abheek Barua, chief economist and executive vice-president of HDFC Bank, said, “Given the pulls and pressures on liquidity conditions in the coming months, the RBI did not announce any durable liquidity absorption measures for now (like CRR hike) in line with our expectations. However, signalled that if required, they are open to the option of conducting OMO sales to manage liquidity conditions. This signals the RBI’s preference for tighter liquidity conditions going forward driven both by inflation risks and financial stability concerns as liquidity tightens globally.”
Suvodeep Rakshit, senior economist at Kotak Institutional Equities, said, “The RBI’s decision to pause along with retaining the withdrawal of accommodation stance was in line with expectations. Importantly, the RBI has explicitly highlighted the need to use OMO sales to modulate liquidity. This will weigh down bond markets’ sentiments. Concerns on food inflation were highlighted which can impart upside to headline inflation. We believe that inflation risks remain on the upside given weather related impact as well as commodity prices.”
He added that global monetary conditions will also weigh on RBI’s policy decisions. The good part is that growth remains resilient and core inflation remains under check. We maintain our call for a prolonged pause on repo rate at 6.5% well into FY2025 while liquidity over the medium term will be aimed at being close to neutral.
Amit Sarin, managing director of Anant Raj Limited, said, “Holding of interest rate at same level in monetary policy is a welcome move and this move will help in sustained recovery in economic growth which country is witnessing. Needless to say, the housing and the real estate sector stand to benefit from the decision. The demand for residential dwellings is expected to remain robust in the coming quarters. The borrowing cost for the corporate too would remain at a reasonable level, which will be beneficial for the economy as corporate will have the leeway to continue to undertake capital expenditure and investment.”
Mohit Jain, managing director of Krisumi Corporation, said, “The RBI’s decision to maintain the status quo on the interest rate augurs well for the housing sector and the real estate sector as a whole. Amid the festive season, the demand for housing particularly mid and luxury housing – is expected to remain robust over the next few months. The ever-increasing inclination towards buying cozy and comfortable living spaces will further get stronger in the near future.”
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