The Reserve Bank of India (RBI) hiked the repo rate by 35 basis points (bps) to 6.25 per cent on Wednesday. RBI governor Shaktikanta Das said that the Monetary Policy Committee (MPC) voted 5-1 to raise the rates. RBI lowered its GDP growth forecast for FY23 to 6.8 per cent from 7 per cent earlier.
Shashanka Bhide, Ashima Goyal, Rajiv Ranjan, Michael Debabrata Patra and Shaktikanta Das voted to increase the policy repo rate by 35 basis points. Jayanth R Varma voted against the repo rate hike.
The MPC, by a majority of 4-2, voted to remain focused on withdrawing accommodation to keep inflation within the target while supporting growth.
Shashanka Bhide, Rajiv Ranjan, Michael Debabrata Patra and Shaktikanta Das voted to remain focused on the withdrawal of accommodation. Ashima Goyal and Jayanth R Varma voted against this part of the resolution.
Das further said that inflation in India would stay above 4 per cent for the next 12 months. For FY23, the inflation forecast has been retained at 6.7 per cent. Despite some signs of moderation, RBI Governor Shaktikanta Das said the main risk was that inflation would remain sticky and elevated.
“MPC was of the view that further calibrated monetary policy action is warranted to keep inflation expectations anchored, breakcore inflation persistence and contain second-round effects…,” Das said.
The central bank had last raised the key benchmark rate by 50 basis points on September 30. With this, the repo rate has been raised by 225 bps since April 2022.
RBI Monetary Policy: What are the experts saying about the policy decision?
Vivek Iyer, partner at Grant Thornton Bharat:
“Given the second-order effects of exchange rates on inflation, we expect continued intervention in the exchange rate market by the RBI, to keep the exchange rates within a band.”
Manish P Hingar, founder at Fintoo:
“The tone is slightly hawkish. We believe that 6.25 per cent could be the terminal rate for now. Real estate stock may react as EMIs are expected to rise.”
Utkarsh Sinha, managing director of Bexley advisors
“…the RBI’s decision to continue with modest hikes is perhaps wise, as long as there is effective communication to the economy about the direction it is meant to be headed and a foreseeable end-point is identified.”
Divam Sharma, co-founder of Green Portfolio:
“RBI’s stance is assured while being cautious. The banking sector should continue to benefit from the robust margins and continuing credit growth from retail as well as corporates. The rate hike is broadly on the expected lines. This should be a status quo announcement for the markets. Markets will now take lead from the US Fed verdict in the coming week.”
Jyoti Prakash Gadia, managing director at Resurgent India:
“Availability of adequate liquidity for the productive sector of the economy has been assured by RBI which augurs well for the stock market, which is now seeing new major entrants and continued foreign inflow. The extension of time for HTM categorisation of fresh Bank investments in bonds till March 2024, paves the way for stability in the bond market/Financial sector and future Government Borrowing. Overall pragmatic revisions of the monetary policy by RBI considering the uncertainties and volatility both at domestic and international fronts.”
Anil Rego, founder and fund manager at Right Horizons:
“RBI commentary and announcement is mostly in line with street expectations and thus we don’t see any material impact on the economy from RBI rate hike decision. Inflation is expected to be around 5 per cent in Q1FY24 and 5.4 per cent in Q2FY24, thus the repo rate is expected to peak around 6.7 per cent for this rate hike cycle.”
Sonam Srivastava, founder at Wright Research:
“We see banks staying strong with this announcement as the interest income gets stronger with the rate hike. There is concern about the export sector given the slowdown in the global economy and consumer sectors to remain robust as rural demand is seen increasing and inflation moderating.”
Ramani Sastri, chairman & MD at Sterling Developers:
“Low-interest rates have been the biggest factor in the resurgence of real estate demand in the last few years and hence the rate hike would mean a hurdle in affordability. However, there is a positive sentiment, as affordability and disposable incomes of new-age homebuyers are much better than in the past.”
Lincoln Bennet Rodrigues, chairman & founder, The Bennet and Bernard Company:
“We believe the positive sentiment will continue in the luxury segment driven by changes in buying patterns post the pandemic. However, a reduction in the key rates going forward 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.”