RBI holds rate steady: Here's what bankers, economists, analysts have to say

Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS said, "This development could make RBI maintain the status quo on rates in the upcoming meetings before considering rate cuts in the latter part of H1FY25. With the recent move by the RBI to increase risk weights on personal and credit card loans, we expect credit growth to slow down in these segments. The Retail and SME segment would lead to credit growth hereon. Pressures on margins for banks will continue. Currently, we prefer the larger banks vs the smaller/mid-sized peers."

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Sanjay Agarwal, Founder, MD & CEO, AU Small Finance Bank said, "MPCs emphasis on keeping Inflation target at 4% in the long run demonstrates RBI’s commitment to support sustainable growth while maintaining financial stability."

"Despite global headwinds, RBI has raised GDP forecast to 7 percent from 6.5 percent for FY’24 demonstrating confidence in domestic growth levers. RBI would continue to remain watchful and ready to act on evolving domestic and global developments as warranted," he added.

Umeshkumar Mehta, CIO, SAMCO Mutual Fund said, "RBI positioned its prudent stance keeping repo rate unchanged at 6.25% and signaled to remain focus on withdrawal of accommodation. This certainly is music to investor’s ear by subtlety communicating peaking of interest rate cycle, with no increase in interest rate in sight. Further, balance sheet moderation as a percentage of GDP is applauded and shows strength in independent thought leadership of RBI."

Lakshmi Iyer, CEO-Investments & Strategy, Kotak Alternate Asset Managers Limited  said, "The policy status quo was in line with expectations. The upward revision in GDP growth estimates would mean continued momentum in equities as well as interest rate sensitives. RBI has not sounded as hawkish as markets expected, hence bond yields may ease a tad. However given India’s CPI data and impending US FOMC decision, upside in prices may be limited. Rates seem to have peaked out and hence rise in yields could be an opportune time to add duration to one’s portfolio.”

Suresh Khatanhar, Deputy Managing Director, IDBI Bank said, "The Indian economy is showing resilience with GDP growth for Q2 having exceeded forecasts, which is a good sign of a sustainable growth momentum. As fundamentals of the economy remain strong with banks and corporates reporting healthier balance sheets and fiscal consolidation on course, the external balance with strong forex reserves provides a cushion against external shocks. A broad-based easing in core inflation certainly points towards past monetary actions yielding desired results. Domestic economic activity is holding up well as assessed by the RBI and the MPC remains alert and prepared to undertake appropriate policy actions as warranted – this provides a good sense of linear growth across sectors for the remaining part of the financial year."

Indranil Pan, Chief Economist, Yes Bank said that there were no surprises in the policy from the rates and the stance perspective. "It is more or less a cut-paste from the previous policy except that the growth estimate is hiked to 7% from 6.5% earlier. On the other hand, there has been no change to the inflation forecast for the current financial year," Pan said.

"However, the RBI consistently, and as also in previous policies, harped on the volatilities to price stability from the food side. The governor warns that the RBI would unlikely lower its guard on inflation and one or two months of positive data on inflation does not, therefore, allow them to chance the course of monetary policy," Pan added.

Sujan Hajra, Chief Economist, Anand Rathi Shares and Stock Brokers, said the policy was less hawkish than had been anticipated. "Simultaneously, the governor issued specific warnings regarding premature adjustments to monetary policy rates and liquidity stance, which indicate that the rate pause and liquidity withdrawal stance may persist for a longer duration than initially expected. We maintain our assessment that no rate reductions would occur until the latter part of fiscal year 2024-25. An upward adjustment to the GDP forecast would have a favourable effect on market sentiment," Hajra added.

Suman Chowdhury, Chief Economist, Acuité Ratings & Research, said the intensity of hawkishness in the policy statement has clearly subsided and a balance has been brought in. "The governor has also highlighted that ‘over-tightening’ can also pose growth risks to the economy which possibly provides a signal that the policy stance may be subject to review in the subsequent MPC meetings," she added.

Also Read | RBI raises FY24 GDP growth forecast to 7.0% from 6.5% after Q2 surprise

Prasenjit Basu, Chief Economist at ICICI Securities, said the RBI governor cautioned against the "risk of over-tightening", which is implicitly a more balanced stance. "The MPC remains focused on bringing headline CPI inflation towards 4 percent, and particularly vigilant about the risk of a renewed spurt in vegetable inflation in November-December. We are more optimistic about growth, so we welcome the upward revision of the RBI’s forecast for 2023-24 to 7 percent," he added.

Also read: RBI MPC Highlights: GDP growth pegged at 7% for FY24, inflation forecast retained

Aurodeep Nandi, India Economist and Vice President, Nomura, said the December policy meeting was an anti-climax of sorts. "In the run-up, there was considerable market uncertainty on the extent of hawkishness that the RBI would exude, particularly given the focus on tighter liquidity in the past two meetings. Instead the RBI surprised markets by choosing to not reprise its previous hawkishness, especially through the liquidity route," he added.
"Overall, we believe the RBI is firmly set on the course of policy pause for now, but predict 100bp of cumulative policy easing starting from August 2024 as inflation moderates and growth headwinds gather."

Madhavi Arora, Lead Economist, Emkay Global Financial Services, said, "The policy outcome is largely neutral for bonds and we see markets to stay range bound amid low year-end liquidity, with 10-year yield hovering 7.2-7.3 percent." She further said the RBI’s consistent concern on skewness of liquidity distribution in the banking system has now led them to allow reversal of liquidity facility under both Standing Deposit Facility and Marginal Standing Facility even on weekends.

Also Read | RBI increases UPI transaction limit for education and healthcare to Rs 5 lakh

Shivaji Thapliyal, Head of Research and Lead Analyst, Yes Securities said, “The RBI, once again, continues to take incremental steps to enhance the ubiquity of the UPI as a platform for retail digital payments. Large value retail digital transactions have generally been in the domain of credit cards and hence, it remains to be seen to what extent allowance of higher UPI payments to hospitals and educational institutions would shift transaction value away from credit cards."