Third repo rate hike necessary to combat elevated inflation: Bankers

The Monetary Policy Committee today unanimously decided to hike the policy repo rate by 50 bps to the pre-pandemic level of 5.4 per cent while reiterating its commitment to “withdrawal of accommodation” so as to reign in inflation.

Bankers have welcomed the move, saying that the third hike in a row was necessary to combat elevated inflation, which remains uncomfortably above the RBI’s targeted range. However, most agree that growth prospects for the domestic economy look promising, reflected in the fact that the central bank has retained GDP forecast for FY23 at 7.2 per cent.

Following are the edited excerpts of bankers’ views on the MPC announcements today:

Dinesh Kumar Khara, Chairman, State Bank of India: The RBI policy statement reaffirmed the commitment to bringing inflation down further and ensuring financial stability in markets. In principle, the RBI, from its vantage position, has harmonised key measures, ensuring the economy remains cushioned to the maximum extent from the impact of inflation in everyday lives.

A K Goel, Chairman IBA, and MD and CEO of Punjab National Bank: The RBI had previously also indicated the need for calibrated tightening of the policy rate to manage the inflation on one hand and also protect the domestic currency from undue volatility arising out of sudden external shocks. Considering the various positive signals emanating from high frequency indicators within the country, the RBI is confident of the resilience of the domestic economy and therefore the GDP projection for FY23 is retained at 7.2 per cent.

Zarin Daruwala, Cluster CEO-India and South Asia markets, Standard Chartered Bank: Another unanimous decision by the MPC to hike the repo rate by 50 bps and stay the course on withdrawal of accommodation, reaffirms its confidence in domestic economic recovery. This is also borne out by the fact that the FY22-23 GDP growth has been retained at a robust 7.2 per cent despite the IMF lowering its global growth forecast recently. Apart from reining in inflation, which is now a global concern, the hike will also bolster and stabilise INR in the face of geopolitical uncertainties. Credit delivery will continue to remain robust with the RBI reiterating its commitment to maintaining adequate liquidity and orderly rates through variable rate reverse repo (VRRR) and variable rate repo (VRR) auctions.

Shanti Ekambaram, Group President and Whole Time Director Designate, Kotak Mahindra Bank: The RBI’s narrative was clear on withdrawal of accommodation while supporting growth, due to inflation being elevated, economic growth being resilient, including strong growth in banking credit. India continues to be impacted by global headwinds of geo-political tensions, tightening financial markets and volatile commodity markets and thus inflation being above the upper targeted mark of 6%. Therefore while RBI has kept economic growth unchanged at 7.2 per cent for the fiscal year, inflation for the year is estimated at 6.7%. The central bank is likely to continue to ensure currency stability, manage liquidity and increase rates to manage inflation.

Venkatraman Venkateswaran, Group President and CFO, Federal Bank: Owing to continuing global uncertainties and trade deficit caused by imported inflation, front loading of the 50 bps rate hike was imperative. The rates are now back to pre-COVID levels. Core inflation continues to be elevated and above the tolerance levels of MPC. The mention of better capacity utilisation and improved bank credit growth augurs well for the banking industry.

Shanti Lal Jain, MD and CEO, Indian Bank

CPI inflation continued to breach the RBI’s upper target range for the sixth straight month and remained above 7% for the third month in a row. Through this policy, RBI has brought in several measures including raising of policy rates by 50 bps, so as to maintain price stability while keeping in mind the objective of growth. The central bank has already started tightening the liquidity in the system along with withdrawal of accommodative stance in a calibrated manner. However, the domestic inflation, which has been mainly driven by supply side constraints, appears to have peaked off.

Murali Ramakrishnan, MD and CEO, South Indian Bank

RBI has taken a measured stance, and its calibration has to be seen in the macro perspective of trying to balance both growth and inflation amidst volatility. An increase of 50 bps in the repo rate may seem hawkish, but it is required to numb the inflationary trends. The earlier revisions have spurred economic activity proving its utility. However, the real worry is the inflation forecast of 6.7% for FY23, with retail inflation being the chief culprit.

Sidharth Rath, MD and CEO, SBM Bank India

The inflation projection of 5% for Q1FY24 coupled with the reiteration of the downward trajectory as we move further into FY23 is a clear indication of the determination to act on curtailing inflation. Certain concerns, such as the impact on imported inflation due to appreciation of US dollar and increased transmission of cost pressures to output prices in near future, also hint toward a continued emphasis on the need for more tightening in the rest of the year. The announcement for standalone primary dealers is a welcome move that will increase the universe of market makers,leading to better price discovery, improved cross-selling and end to end services (activities in debt + solution for hedging currency risk).

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