RBI post-MPC press conference LIVE updates: It is a pause, not a pivot stance, says Governor Das

The Reserve Bank of India held the key policy rate steady at 6.5 per cent for the second time and while lending rates may remain stable, they will not be going down any time soon.​ This is not very good news for the rate-sensitive real estate sector​. What’s more, the RBI has made it very clear that it is focused on taming inflation — aligned to the CPI target of 4 per cent — and with inflation still above 5 per cent, uncertainties about a normal monsoon and the geo-political tensions persisting, all are pointers towards very chances of a rate cut in FY24. Read ​more​.

Nitsure said, “By holding the rates and policy stance, the RBI has shown its firm commitment to achieving the point target of inflation without compromising financial stability. In fact, it appears to be more concerned about inflationary risks than growth risks during the second half of FY24. Additional measures like liberalising the norms for borrowings in call and notice money markets by banks and rationalisation of prudential norms on restructuring caused by Natural calamities for all regulated entities are timely and will provide better flexibility to lenders.

With the repo rate remaining unchanged, borrowers are now faced with the difficult decision of whether to opt for fixed-rate loans that may be available at a discount or stick to floating-rate loans. While fixed-rate loans offer an assurance of a constant repayment amount, they come with a higher initial cost. On the other hand, floating-rate loans offer more flexibility but could result in higher EMIs in case of an increase in interest rates. It is important for borrowers to carefully consider their financial situation and future plans before deciding which loan option is best suited for them, he said.

RBI’s move to keep policy rates unchanged was widely expected. After a cumulative hike of 250 basis points (bps) last fiscal, the central bank has moved to the sidelines to see their impact on growth and inflation play out this fiscal. The central bank remains vigilant of global volatility. Even as central banks in major advanced economies have reduced the pace of rate hikes, inflation rules above their target and faces upside risks from tight labour market conditions. We expect RBI to maintain status quo on rates this fiscal and initiate cuts in the January-March quarter of 2024.

The central bank lowered its inflation forecast only marginally to 5.1 per cent and seems to be building in a buffer for any food prices spikes due to weather-related disturbances during the monsoon season. If indeed these risks do not pan out, inflation could be lower than the RBI’s projections leading to subsequent communications becoming more dovish. Today’s policy decision does little to move the needle in the bond market as it was broadly in line with expectations. Any rate cut expectations in 2023 that was being built up in the market are likely to be pushed forward for now.

A part of the MSP hike built into RBI’s inflation projections added Governor Das.

Inflation is moving towards the target but not as fast as growth is normalising, he said during the post-MPC press conference.

In order to expand payment options for Indians travelling abroad, the Reserve Bank of India on Thursday decided to allow issuance of RuPay Prepaid Forex cards by banks in India for use at ATMs, PoS machines and online merchants overseas. Further, RuPay Debit, Credit, and Prepaid Cards will be enabled for issuance in foreign jurisdictions, which can be used internationally, including in India, Reserve Bank Governor Shaktikanta Das said, while unveiling the second bi-monthly monetary policy of this fiscal. Read more.

RBI will give enough time to banks to meet norms on Expected Credit Loss (ECL) provisioning requirements

Overnight call rates are therefore aligned to 6.5%

Nandi said, “In the run-up to the policy meeting, the economy finds itself in a fortuitous ‘Goldilocks’ macro situation, with better-than-expected Q4 FY23 GDP growth and inflation tracking closer to the RBI’s mid-point target of 4 per cent. Hence, the macro conditions remained conducive for the RBI to pause and reinforce its FY24 forecasts for GDP growth at 6.5 per cent and a slightly lowered CPI inflation at 5.1 per cent. Governor Das remained bullish on growth and hawkish on inflation, reiterating the RBI’s inflation target of 4 per cent. Our macro view though remains that both, growth and inflation are likely to undershoot the RBI’s projections in FY24.”

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Bajoria said, “However, we do not believe a policy pivot, where RBI would start signalling cuts, is coming soon. As such, we see RBI remaining on hold through FY2023-24, only seeing a window for rate cuts opening in Q1 FY2024-25 (April-June 2024).”

He added, “As an inflation-targeting central bank, we think the RBI would likely want to watch for signs of sustained disinflation, with the headline inflation (and ideally core) as well nearing its medium-term target of 4 per cent. Additionally, the central bank should have fewer concerns about growth, as interpreted through its statement today on the growth outlook.”

Iyer said, “Given global macro headwinds were still visible, the members did not feel appropriate to change their stance. It looks like the market wait for rate cuts just got longer, as we saw Canada policymakers announce a surprise rate hike. Key incoming data dependency will continue to be the order of the day. Policymaker guard rails remain. Bonds may continue its sideways movement and continue to track global bond yields specifically US treasuries.”

Rao said, “As the RBI maintained its strong GDP projections, these supportive recovery prospects also lowered the urgency for a quick turn in the policy direction. A pause will allow for the lagged impact of past hikes to filter through to the real economy, with policymakers keen to keep real rates in positive territory. Liquidity swings will be met via need-based money market operations rather than durable tools.”

“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,” he said.

Ekambaram said, “In all the RBI reiterated its ‘watchful stance’ to emerging risks and a commitment to maintaining price stability and providing ample liquidity for economic growth. All this is in the backdrop of strong economic growth and lower inflation. Rates are likely to be paused for long unless there is any dramatic shift in inflation, growth or global volatility.”

Arora said, “On net, the MPC tone was balanced amid improving domestic inflation outlook, improving external sector dynamics, and ongoing monetary-policy lags of past hikes, offset by still-high inflation vs target and near term monsoon risks, and emerging risks from still-fluid global situation. We do not see any rate reversal by the RBI in FY24”

Shah said, “The RBI is reminding of the greatest opening batsman Sunil Gavaskar — standing without fear in front of a challenging global environment. Taking a fresh stance after scoring a century on a challenging wicket to reassure everyone ‘Mai Hoon Na’. Indian economy is ideally balanced between growth and inflation under RBI’s navigation. The market will be pleasantly surprised if the GDP growth for FY24 comes as per the expectations of the RBI at 6.5 per cent.”

Rakshit said, “The RBI remains cautious on the inflation trajectory especially as inflation will remain above the 4 per cent target for the foreseeable future... We believe there are some downside risks to growth and that rate cuts will be contingent on significant divergence in growth-inflation prospects. We maintain our call that the RBI will be on an extended pause.”

The phase-in time for the achievement of PSL targets by UCBs has been extended up to March 31, 2026. This is to ease the implementation challenges faced by the UCBs. Read more.

Indian government bond yields ​moved higher on Thursday​, with the benchmark yield rising above 7 per cent, after the Reserve Bank of India maintained status quo on policy rates and its stance, but said headline inflation will stay above target this financial year. Read ​more​.

A regulatory framework for FLDG (First Loss Default Guarantee) model is expected to be issued as a part of the second round of digital lending norms, and is likely to be more enabling than prohibitive, according to industry sources.

Indian shares held gains on Thursday, with the benchmarks closing in on all-time highs, after the Reserve Bank of India (RBI) maintained key policy rates, said Reuters. The blue-chip Nifty 50 index was up 0.21 per cent at 18,765.30 as of 10:19 a.m. IST, while the benchmark S&P BSE Sensex rose 0.22 per cent to 63,286.91. Read more.

India’s growth has bounced back and headline CPI inflation is easing

RBI allows banks to issue Rupay prepaid forex cards, Das says

Permitted non-bank payment issuers can issue e-rupee vouchers.

This excludes small finance banks.

Forex reserves are well above $600 billion including forward assets, he added.

Services exports grew faster than merchandise exports in FY23, Governor Das added.

CAD should remain manageable in FY24 as well, he added.

The VRRR auction have been conducted due to a build-up of surplus liquidity, he added.

Liquidity surplus has expanded due to RBI’s forex operations. Data has suggested that there are skewed liwuidity conditions within the banking system. Pick up in government spending resulting in higher liquidity: Das

‘Need to maintain an Arjuna eye on inflation,’ he adds.

Q3 CPI at 5.4%, and Q4 CPI at 5.2%, he adds

Headline CPI has slowed in food, fuel, and core inflation

The ​RBI revised the FY24 CPI inflation projection​ a tad lower at 5.1 per cent from the earlier projection of 5.2 per cent even as it kept the FY24 GDP growth projection at 6.5 per cent unchanged.

CPI inflation is now projected to moderate to 5.1 per cent for 2023-24 (against 5.2 per cent projection earlier); with Q1 at 4.6 per cent (5.1 per cent); Q2 at 5.2 per cent (5.4 per cent); Q3 at 5.4 per cent (5.4 per cent); and Q4 at 5.2 per cent (5.2 per cent), with risks evenly balanced.

It is at a 31-month high

Fixed investment by manufacturing companies increased in FY23 after contracting in FY22

Production and import of Capital goods suggests buoyancy in capital investments

Urban demand is resilient, indicated by high frequency indicators; rural demand is on a revival path

Average system liquidity in surplus

Fiscal consolidation is also ongoing

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The 10-year benchmark 7.26 per cent 2033 bond yield is expected to be in the 6.96-6.99 per cent range until the monetary policy decision due at 10:00 a.m, after closing at 6.98 per cent in the previous session, a trader with a private bank said.

The market has already factored in rate action, but the crucial triggers will be the guidance and comments on the inflation path, the trader added.

Read more here.

Domestic markets are likely to open on a flat-to-positive note on Thursday. Analysts expect the market to remain range-bound in the early part of the trading, as the RBI is set to announce its decision on rates today. All are expecting a status qua stance and a sober comments on economic outlook.

The real estate sector heaved a collective sigh of relief as the Reserve Bank of India in its previous meeting took its foot off the rate hike pedal, providing a breather to the sector which has been fearfully tracking interest rate movements over the past one year.

State Bank of India’s economic research department (ERD) expects one more pause by the Reserve Bank of India’s Monetary Policy Committee (MPC) in view of the recent Consumer Price Index (CPI) and Core CPI numbers.

In an initial indication of easing in the interest rate scenario, larger banks have started cutting rates on short-term fixed deposits (FDs) of up to 3 years driven by better systemic liquidity conditions and softer short-term money market rates.

Most lenders are expecting the Reserve Bank of India to pause on rates in its upcoming bi-monthly monetary policy this week after the CPI inflation print for April came below the central bank’s upper threshold of 6 per cent.

The six-member rate-setting monetary policy committee (MPC) of RBI voted unanimously to hold the policy repo rate at 6.50 per cent.

The MPC, in its first meeting of FY24, also voted by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation remains within the target.

Read the highlights of the RBI’s previous MPC meeting ​​here​​.