The Reserve Bank of India (RBI) on Thursday announced its bimonthly monetary policy, and decided to keep its key lending rate - repo rate - unchanged. RBI Governor Shaktikanta Das said that the six-member Monetary Policy Committee (MPC) has unanimously decided to keep the repo rate unchanged at 6.50 per cent. The MPC maintained that the focus would be on the withdrawal of accommodative policy stance to ensure that inflation progressively aligns with target, while supporting growth. The central bank also raised its inflation projection for FY24 from 5.1 per cent to 5.4 per cent, while retaining its GDP projection at 6.5 per cent. The headline inflation after reaching a low of 4.3 per cent in May 2023, rose in June and is expected to surge during July and August, led by vegetable prices, RBI guv Das added. The RBI also asked banks to set aside a larger part of incremental deposits under the cash reserve ratio (CRR) to tighten liquidity in the near term. Das said, "Banks shall maintain an incremental CRR of 10% on increase in deposits between May 19 and July 28, with effect from the fortnight starting August 12." This is how the industry leaders reacted to RBI hitting pause on a repo rate hike for the third time in a row: Ranen Banerjee, Partner, Economic Advisory Services, PwC India The MPC meeting outcomes have been on expected lines. The inflation projection coming in higher was expected owing to the temporary high prices of vegetables and the risks coming from enhanced global food prices from heightened geopolitical conflicts. The good news is that the core inflation is not trending higher. The economic growth rate has been projected to 6.5% given the recent strong prints in the high frequency indicators. The statements from the Governor though has conveyed the enhanced risks to growth and inflation and we can therefore take comfort that besides the withdrawal of accommodation stance being continued, we can expect the continued pause for the next MPC meeting too. Dharmakirti Joshi, Chief Economist, CRISIL Mint Road seems staunchly focused on keeping consumer inflation within the 4% target, while standing pat on rates and monetary policy stance. Additionally, the introduction of incremental cash reserve ratio could temporarily harden short-term rates. The spike in vegetable inflation is a recurrent, and often transient, phenomenon and the central bank can afford to look through it. But high foodgrain inflation, amid threat from weather and global developments, is difficult to ignore, given its higher weight in the CPI basket. Although repo rate hikes cannot directly impact supply-side driven food inflation, it becomes a concern if it sustains and spills over to other components, and steers headline inflation away from the goal. So fingers crossed on this. A 25 bps rate cut in the January-March 2024 quarter is, therefore, a conditional possibility for now. Adhil Shetty, CEO, BankBazaar.com Today’s announcement, which is the third repo rate pause implemented by the RBI, is sure to bring relief to borrowers who have been tackling rising debt burdens due to a series of rate hikes over the last 15 months which increased the repo rate by 250 basis points. However, the possibility of a future spike in inflation causing interest rates to rise further is something that borrowers should be prepared for. Borrowers grappling with the effects of previous rate hikes will get much relief following today’s announcement. Ramani Sastri, Chairman and MD, Sterling Developers: The RBI’s decision to maintain the status quo in the repo rates augurs well for the real estate sector. It is important to note that the macro-economic fundamentals of the country are strong and the economy is performing well. The real estate market has seen a strong rebound in in the recent past driven primarily by end-users and we see this up-cycle continuing in 2023. Also, the strong fundamentals for housing demand will keep the momentum upward for realty sales where buyers are carefully filtering out projects and looking for the right product mix in terms of affordability, accessibility and quality of living. The continuation of existing policy rates and undoubtedly, a further reduction in interest rates in the near future would be preferred to bolster overall market confidence and make it more enticing for home buyers. Lincoln Bennet Rodrigues, Chairman & Founder, The Bennet and Bernard CompanyL We welcome RBI’s decision to maintain status quo as it helps in holding the interest rates and sustaining the growth momentum in the real estate sector. In the residential segment, buyer sentiment has continued to be robust and this has resulted in home sales showing an appreciable rate of growth. Post-pandemic, the luxury housing market has acquired a strong foothold, thanks to the rising disposable incomes accompanied by a desire for better living, subsequently driving up prices in this segment. As buyers seek a signature style of living, this trend is expected to continue in the near future, given change in lifestyles, rapid urbanisation and needs. The heightened demand for luxury properties has been further bolstered by the rise in investments from non-resident Indians (NRIs). However, a further reduction in the key rates would be widely celebrated as low interest rates have been a crucial factor in the revival of overall real estate demand and improvement in the liquidity situation which is vital for the sector. Niraj Kumar, Chief Investment Officer, Future Generali India Life Insurance Company Ltd: MPC has been well measured and level-headed in delivering today’s policy verdict of ‘A Pause’ while keeping Arjuna’s eye on Inflation and being nimble in its approach and action. MPC has rightly chosen to look through the recent surge in vegetable price inflation and has preferred to remain on a wait-and-watch mode along expected lines. While the nudging of Inflation forecasts higher is on expected lines, it does reflect the probability of an extended pause by MPC. While MPC’s move of scaling back of excess liquidity by way of increase in incremental CRR by banks is sentimentally negative from banks perspective in the interim, it does align with MPC’s policy stance of containing overall inflation. Overall, the undertone of the policy was being cautious and data dependent amid the looming uncertainty around domestic inflation, energy prices and global growth uncertainty. Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities: The RBI, as expected, has maintained policy rate and stance. The incremental CRR would amount to around Rs 70,000 - 75,000 crore but should be manageable and will be reviewed prior to the festive season begins. We see some upside risk to the RBI’s inflation forecast of Q2FY24 though we are in line with the FY2024 inflation estimate of 5.4%. We continue to believe that the RBI will remain on a prolonged pause given the aim to revert inflation to 4% target while inflation remains around the 5% handle for now, second it will watch for durability of the recent price increases and impact on inflation expectations, and third it will gauge the impact of 250 bps of rate hike on growth-Inflation dynamics.
