RBI monetary policy: Repo rate unchanged, what do experts say about it?

RBI repo rate: RBI governor Shaktikanta Das said that the MPC decided unanimously to keep the benchmark rate unchanged at 6.5 per cent

Reserve Bank of India, RBI

Photo: Bloomberg

BS Web Team New Delhi
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), on Thursday, announced its decision to keep the repo rate unchanged at 6.5 per cent. RBI governor Shaktikanta Das said that the committee took the decision unanimously.

The gross domestic product (GDP) forecast for 2023-24 (FY24) has also been kept unchanged at 6.5 per cent. However, the inflation target for FY24 has been lowered marginally to 5.1 per cent from 5.2 per cent earlier. 

Das said inflation is expected to remain above 5 per cent in FY24.

The MPC also announced that it will continue with its stance of "withdrawal of accommodation".

RBI Policy: What do the experts say?

Most of the industry experts have taken the announcement positively.

Ranen Banerjee, partner of economic advisory services at PwC India, said, "The MPC expectedly continued with the rate pause as the inflation prints have come well within the tolerance band of 2 to 6 per cent and growth concerns persist. The stance has been kept as a withdrawal of accommodation as that is the signalling the RBI wants for keeping the inflationary expectations anchored. The FY24 growth rate projection of 6.5 per cent is more on the optimistic spectrum band as the number of downside risks listed are quite many. The projected growth rate for Q1 at 8 per cent in FY24 is likely to get tested despite the holding up of demand in the first two months of the year."

According to Vivek Iyer, partner at Grant Thornton Bharat, "As expected, the repo rate has rightly been left unchanged, given that the past rate hikes of 250 basis points since May 2022 have taken effect and the CPI lies within the inflation tolerance bands of RBI. However, given the global geo-political uncertainties, RBI will continue to wait and watch. A very balanced approach by RBI. The real GDP Growth is projected at 6.5 per cent for FY24 with quarter-on-quarter GDP numbers declining from 8 per cent to 5.7 per cent. This to us, reflects that probably an accommodative stance may be expected towards the last quarter of FY24."

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Expressing similar views, Jyoti Prakash Gadia, managing director at Resurgent India, said, "The status quo maintained by RBI in repo rate is on expected lines as the central Bank indicated a wait-and-watch approach in the current economic scenario which is exhibiting mixed trends on growth and inflation parameters along with financial and geo-political uncertainties at the global level."

He added, "The RBI has chosen to assess, in the coming months, the complete impact of the repo rate hike of 250 basis points taken up earlier and then formulate its strategy for the future. The stance and broader outlook have also not therefore been changed by RBI at this stage to neutral till the inflation declines to an acceptable level. The overall RBI intentions to support growth while keeping a close vigil on headline inflation is a welcome approach in the interest of the economy at this stage."

V Swaminathan, executive chairman of Andromeda sales and Apnapaisa.com, said, "The RBI's decision to maintain the policy rates unchanged is positive news for borrowers, especially considering the global apprehensions that persist in advanced economies. However, the RBI remains focused on preserving price and financial stability while ensuring adequate flow of financial resources to all productive sectors of the economy."

He added, "It is encouraging to note that domestic macroeconomic fundamentals are strengthening, with resilient economic activities, moderated inflation, comfortable current account deficit, and robust credit growth. If the situation persists or improves further, we can anticipate a potential rate cut in the next monetary policy review."

Vikas Garg, head of fixed income at Invesco Mutual Fund, said, "Overall, a pause was expected with a lesser likelihood of further rate hikes. Nonetheless, a long wait for the rate cut cycle as inflation remains higher than the 4 per cent target."

Real estate experts said that the decision may improve housing demand.

Shishir Baijal, chairman and managing director at Knight Frank India, said, "We believe that this status quo will facilitate positive decision-making for home buyers...the trajectory of India's economic growth will be beneficial. Despite a significant increase in interest rates, the sector has been performing well. Real estate loan demand from both housing and commercial segments has remained strong, despite a 150 bps rise in the base lending rate (MCLR) over the past year. However, we remain cautious about the industry, as the complete transmission of the repo rate hikes to lending rates is yet to be observed."

Amit Goyal, managing director at India Sotheby's International Realty, said, "The RBI's decision reflects their cautious approach in light of the persistent inflationary pressures and their potential impact on domestic consumption growth. However, the positive aspect is that the pause in rate hikes will instil a sense of optimism among borrowers and we expect the housing sales momentum to continue."

"As home loan rates are already at elevated levels of 9 per cent and above, this is a significant breather for lenders, developers and homebuyers. First-time homebuyers will be better placed to make their home-buying decision in a stable lending rate regime. Fence sitters in the affordable and mid-segment will have greater visibility of their EMIs and thus affect buying," added Vimal Nadar, head of research at Colliers India.

First Published: Jun 08 2023 | 1:33 PM IST

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