The MPC resolved to continue keeping a close vigil on the evolving inflation and growth outlook. The panel said growth output is pegged at 6.5%, while the policymakers trimmed their inflation forecast for this fiscal year that started April 1 to 5.1% from 5.2%.
However, they expect the print to stay above the 4% target throughout this financial year. They also said growth output is pegged at 6.5%.
The policymakers vowed to take further monetary actions promptly and appropriately as required to keep inflation expectations firmly anchored and to bring down inflation to the target.
Radhika Rao, Senior Economist, DBS Bank, Singapore
Along our expectations, the benchmark rate and stance were held unchanged, as the MPC prefers to stay on wait-and-watch mode to gauge the fallout of weather conditions on the price trend before considering a pivot to easing. This comes against the backdrop of the Australian weather bureau turning up the probability of an El Nino occurrence and action from the global central banks reflecting vigilance on inflation as well as financial stability risks. As the RBI maintained its strong GDP projections, these supportive recovery prospects also lower 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.Sakshi Gupta, Principal Economist, HDFC Bank
While keeping the policy rate unchanged, the RBI remained cautious on inflationary risks going forward and was sufficiently hawkish — reiterating the need to keep monetary conditions tight to anchor inflation at 4% through the year. The commentary on growth was upbeat as expected with the RBI keeping its projection unchanged at 6.5% for FY24.
The central bank could keep rates unchanged through the year with the chance of any rate cuts in FY24 seeming slim for now. We expect both growth and inflation to be lower than the RBI’s estimates — Growth at 6% and inflation to average at 4.8-5% in FY24. The policy decision does little to move the needle in the bond market as it was broadly in line with expectations.
Garima Kapoor, Economist, Institutional Equities, Elara Capital
“Encouraged by the recent softening of retail inflation as well as easing global inflationary impulses, in line with our expectations, MPC decided to maintain pause and retain stance of withdrawal of accommodation”.
“Healthy domestic growth impulses and receding inflationary risks in recent months amid strengthening of external sector dynamics are encouraging. We see MPC remaining on a prolonged pause in CY23 and see room for MPC to cut policy rate by 25 bps in Q4FY24, led by softening inflationary impulses.”
Anu Aggarwal, President and Head of Corporate Banking, Kotak Mahindra Bank
Leaving the policy rates unchanged was expected with inflation cooling down partly due to base effect and partly with oil at $ 70 (compared to $ 115 in June 2022). With global macro anyways pulling businesses down, RBI’s action will provide much-needed support to local demand and growth.
I expect interest rate stability will boost Capex plans, the bulk of which has so far been driven by the Government. The multiplier effect of Investment spending is much higher than that of Consumption spending.”
Yuvika Singhal, Economist, QuantEco
Status quo on rates and policy stance is completely in line with expectations. Recent comfort on inflation and forecast of a normal monsoon provided some space to the RBI for marginally lowering its FY24 CPI inflation forecast to 5.1% from 5.2% earlier, although the 4-quarter ahead inflation forecast for Mar-24 remained unchanged at 5.2%. With risk of El Nino potentially disrupting south-west monsoon performance, likelihood of residual tightening by other major central banks, and need for CPI inflation to gravitate towards its 4% target by FY25, we continue to expect a prolonged pause by the MPC.
V K Vijayakukar, Chief Investment Strategist at Geojit Financial Services
Even though the MPC’s rate decision and stance have come on expected lines as pause and withdrawal of accommodation respectively, the Governor’s commentary can be interpreted as positive. The central bank’s projection of FY24 CPI inflation has come at 5.1%, lower than 5.2% projected in the previous meeting. This indicates that the MPC has come to the end of this rate hiking cycle. If the monsoon is normal and the global scenario is favourable, the MPC may think about a rate cut by end CY2023 or early 2024. From the stock market perspective, this is positive.The Governor’s remark that “India’s economic and financial sector remains resilient amidst global turmoil” is a reflection of India’s strong and improving fundamentals.
Ranen Banerjee, Partner, Economic Advisory Services, PwC India
The MPC expectedly continued with the rate pause as the inflation prints have come well within the tolerance band of 2 to 6% and growth concerns persist. The stance has been kept as 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% is more on the optimistic spectrum band as the number of downside risks listed are quite a many. The projected growth rate for Q1 at 8% in FY24 is likely to get tested despite the holding up of demand in the first two months of the year.
Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company
“The RBI is reminding of 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 that Mai Hoon Na. Indian economy is ideally balanced between Growth and Inflation under the RBI’s navigation. Market will be pleasantly surprised if the GDP growth for FY 24 comes as per the expectations of the RBI at 6.5 %.”