The Reserve Bank of India (RBI) on September 30 announced a 50 basis points hike in the repo rate stepping up its fight against persistently high inflation.
Repo is the rate at which the central bank lends short-term funds to banks. One bps is one-hundredth of a percentage point. With the latest rate hike, the repo rate now stands at 5.9 per cent.
Announcing the policy decision, RBI Governor Shaktikanta Das highlighted the worry of the rate-setting panel on inflation and said the central bank is watching the price situation closely
A 50 bps increase in the repo rate this week is the fourth consecutive one since May. This has taken the repo rate, at which the RBI lends short-term funds to banks, to 5.90 per cent – the highest level since April 2019 – from 5.40 per cent.
The Monetary Policy Committee (MPC) began its three-day meeting on September 28 and will announce the outcome on September 30.
The MPC has increased the policy repo rate by 140 basis points since May to quell inflationary pressure. The consumer price index (CPI) based retail inflation, which had started showing signs of moderation since May, has again firmed up to seven per cent in August. The RBI takes into account retail inflation while framing its bi-monthly monetary policy.
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India has got responses from up to five countries for rupee settlement mechanism, more interested: RBI deputy governor
-India has received responses from four to five countries for its mechanism for international trade settlement in rupees, while other nations have also shown interest, a deputy governor at the Reserve Bank of India said on September 30.
-“The response has been fairly good but since the process involves a lot of vetting at the level of banks, at the level of the central bank, at the level of the government, the initial process is taking some time,” T Rabi Sankar told reporters in Mumbai at a post-policy interaction. Sankar did not respond to a query on whether Russia was one of the countries that was interested in the mechanism.
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See no reason to extend tokenisation deadline as 35 crore tokens already created, says RBI Deputy Governor T Rabi Sankar
-The Reserve Bank of India (RBI) has been in talks with stakeholders for implementation of tokenisation and there is no reason to delay it any further, said Deputy Governor T Rabi Sankar ahead of new card storage norms kicking in from October.
-"The feedback we have from all stakeholders is that it (ecosystem) is perfectly ready. I understand there are a few participants who may not be ready, but that would probably be because of their unwillingness to comply. We don't believe that we should hold back efforts because of such laggards," he said.
-The deadline to implement tokenisation has been delayed multiple times over the past two years at the request of stakeholders, most recently by three months from 30 June 2022.
RBI MPC lowered real GDP growth estimate for FY23 to 7% from 7.2%
-Reserve Bank of India (RBI) governor Shaktikanta Das projected real GDP growth rate for FY23 at seven percent on September 30 down from the 7.2 percent estimated earlier.
-Das estimated growth for the second quarter of FY23 at 6.3 percent (versus 6.2 per cent earlier), for the third quarter at 4.6 percent (4.1 per cent earlier) and for the fourth quarter at 4.6 percent (four per cent earlier).
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JUST IN:
Letter to government on failing to meet inflation target won't be made public: RBI Governor
JUST IN:
Expectation is September inflation could be higher than 7%: RBI Governor Shaktikanta Das
We expect not more than 100 bps hikes ahead: Madhavi Arora, Emkay Global
-''Clearly, the fast-evolving world order and consistent repricing of Fed’s outsized hikes are strong-arming the EMs.This painful adjustment has not spared the RBI either, which realised the net cost of a supposed soft signalling via shallow hike could be higher than a larger hike of 50bps.
-This exposes the instability inherent with the classic EM central bank trilemma: one cannot have a stable currency, unfettered capital flows, and independent monetary policy all at the same time.
-This conscious front-loading could give them some breather next year on shallow hikes ahead. With inflation likely to be largely in line with RBI’s estimates, this week’s 50bps hike will make the ex-post forward real repo rate positive, albeit still lower than the RBI’s estimated real neutral rate of 0.8-1%.
-At this point, we still think that the RBI would not go too restrictive and terminal rate could hover near the estimated real rates, implying not more than 100bps hikes ahead, including today’s decision,'' said Madhavi Arora, Lead Economist, Emkay Global Financial Services.
MPC to discuss RBI's reply to government on failing to meet inflation target
-At the post-policy presser, RBI Governor Shaktikanta Das said that they will write a letter to government explaining the failure to meet inflation target below 6 per cent.
-The MPC will have a meeting to discuss RBI's reply to government on failing to meet inflation target
-Expecting inflation to come down closer to target over two-year cycle, added RBI Governor
Want to state clearly that liquidity in banking system not in deficit: RBI Governor
-Systemic liquidity over Rs 5 lakh crore, no concerns on liquidity being suddenly tight: RBI Governor
-Liquidity is not tight, net LAF has been in surplus for last two years, said Shaktkanta Das at post-policy press conference
RBI Monetary Policy | What is the message from Shaktikanta Das to markets?
-The message from Reserve Bank of India Governor Shaktikanta Das to markets on Friday is crystal clear -expect more rate hikes over the next few quarters - as the central bank continues its big battle against zooming prices even at the cost of hurting growth for the near term.
-There was enough hints, during the governor's address, to show that there isn't any compromise on the war against inflation. A 50-basis-point rate hike won't be the last in this rate hike cycle.
-Look at the numbers. By the RBI's own admission, the threat of high inflation is far from over. Das said the retail inflation is likely to average at 6 percent in the second half of this year and 6.7 percent for the full year, way above the upper tolerance level of 6 percent.
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RBI gave a “Mai Hoon Na” policy: Nilesh Shah, Group President & MD, Kotak Mahindra Asset Management Company
-“The RBI gave a “Mai Hoon Na” policy doing a fine tight rope walking between Inflation, Growth and Stability. The RBI is batting on a difficult pitch against a hostile bowling. Rapidly deteriorating global situation, drawdown of systematic liquidity and FX reserves, inflationary pressure and Growth concern are testing the RBI.
-The RBI has so far batted with few misses. Most important thing is that they haven’t lost the wicket and kept score board moving. The RBI has been proactive and data driven to deal with rapidly evolving situation. They have assured the market that they are in safe hands in the global storm,'' said Nilesh Shah, Group President & MD, Kotak Mahindra Asset Management Company.
RBI to seek feedback for additional framework on securitisation of stressed assets
-Reserve Bank of India (RBI) will soon launch a discussion paper seeking industry feedback on introducing a framework for securitisation of stressed assets in addition to the asset reconstruction company (ARC) route, Governor Shaktikanta Das said on September 30.
-Currently, only the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act provides a framework for such securitisations by asset reconstruction companies (ARCs).
-“However, based on market feedback, stakeholder consultations, and recommendations of the task force on development of secondary market for corporate loans, it has been decided to introduce a framework for securitisation of stressed assets in addition to the ARC route, similar to the framework for securitisation of standard assets,” the central bank said.
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RBI Governor Shaktikanta Das to address post-policy press conference at 12 noon
Here's how you can watch press conference:YouTube: https://youtu.be/rhvk3V6zZV0
Should banks follow credit loss model for provisioning: RBI to seek industry views
-Reserve Bank of India (RBI) Governor Shaktikanta Das on September 30 said the central bank will soon release a discussion paper seeking industry opinion on whether banks should follow the expected credit loss (ECL) model for loan loss provisions, instead of the incurred loss model.
-“The inadequacy of the incurred loss approach for provisioning by banks and its procyclicality, which amplified the downturn following the financial crisis of 2007-09, has been extensively documented,” Das said. “One of the major elements of the global response to these findings have been a shift to expected credit loss (ECL) regime for provisioning.”
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''Reluctance to change stance from ‘withdrawal of accommodation’ indicates more monetary policy tightening likely in the pipeline''
-“Markets were largely expecting the RBI’s 50bp rate hike today due to a troika of factors – sticky, above-target inflation, stable growth prospects, and currency depreciation triggered by expectations of further frontloaded rate hikes by DM central banks.
-The relatively unchanged growth and inflation outlook by the RBI indicates that the policy arithmetic hasn’t materially changed for it, and the reluctance to change stance from ‘withdrawal of accommodation’ indicates that more monetary policy tightening is likely to be in the pipeline.
-It is important that the RBI reminded that true interest rate defence of the currency doesn’t necessarily comes not from hiking policy rates in response to depreciation, but by adhering to the flexible inflation targeting framework, thereby ensuring macroeconomic stability,'' said Dr. Aurodeep Nandi, India Economist and Vice President at Nomura.
We expect the MPC to hike 35bps in the December policy: Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank
- "Repo policy rate hike of 50bps is in line with our expectations. Given the global adverse conditions we remain wary on the pressure on INR and hence the need for continued rate hikes.We expect the MPC to hike 35bps in the December policy. However, with inflation expected to fall within 6% threshold in 4QFY23, we expect the MPC to probably pause and assess the lagged impact of monetary tightening,'' said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank
Market shrugs off nervousness as RBI sticks to predictions; rate sensitive stocks gain
-Benchmark indices recovered some ground on September 30 as the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) raised policy rates by 50 basis points which was on expected lines.
-The nervousness shown by the market over the last seven sessions when both the Nifty and the Sensex closed in the red seems to have disappeared as RBI Governor Shaktikanta Das progressed in his speech.
-The 30-share flagship Sensex rose over 240 points or 0.43 percent to 56,650, while its broader peer NSE Nifty climbed 59 points or 0.35 percent to 16,894. Broader markets though remained under selling pressure.
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RBI to continue two-way liquidity fine-tuning operations; liquidity situation to be constantly monitored
-Surplus liquidity in banking system moderated to Rs 2.3 lakh crore in August-September from Rs 3.8 lakh crore in June-July. The liquidity situation will be constantly monitored, announced RBI Governor Shaktikanta Das
Catch Key Highlights from RBI Monetary Policy so far:
-Forex reserve at $537.5 billion as on Sept 23.
-Trade deficit remained high in July and August.
-RBI to merge 28-day VRR with 14-day main auction.
-Discussion paper on securitisation of stressed assets to be issued.
With this repo rate hike, home loans to get dearer: Anuj Puri, Chairman, ANAROCK Group
-''With this repo rate hike, home loans will get dearer soon. This could impact residential sales to some extent during the upcoming festive quarter, particularly in the affordable and mid-range housing segments. '
-The hike in home loan rates will be in addition to the other increasing costs such as inflationary trends of construction input costs.
-With the overall acquisition cost increasing further, developers will have to seriously consider doling out targeted offers and discounts to boost sales during the critical festive quarter,'' said Anuj Puri, Chairman, ANAROCK Group
RBI does not have any fixed exchange rate in mind, enters market to curb volatility
-Rupee depreciated in an orderly manner against dollar. Rupee has fared much better than reserve currencies, EM currencies
-Rupee is a freely floating currency; its exchange rate is market determined. RBI does not have any target for rupee’s exchange rate
-FX interventions based on assessment of evolving situation in view of FX framework, said RBI Governor Shaktikanta Das
Forex reserve $537.5 billion as on Sep 23, compares favourably with most peer economies
-INR fared much better than several reserve currencies, EM, Asian peers
-‘Umbrella’ of forex reserves continues to remain strong, said RBI Governor
RBI to now conduct only 14-day VRRR auctions; 28-day VRRR merged: Das
-RBI Governor Shaktikanta Das announced that the central bank has decided to merge 28-day variable rate reverse repo operations with 14-day VRRR. Only 14-day VRRR auctions will continue going forward.
Catch Key Highlights from RBI Monetary Policy so far:
-Monetary Policy Committee hikes repo rate by 50 bps to 5.9 percent.
-Real GDP growth for FY23 is projected at 7%.
-Inflation to remain elevated at around 6% in the second half.
-RBI to remain focused on the withdrawal of accommodation stance.
-Bank credit grew at 16.2% YoY as on Sep 9, vs 6.7% last year
Inflation projection retained at 6.7% for FY23: RBI Governor
-Inflation expected to reduce to five per cent by April-June or Q1FY24
-Risks from food inflation could have adverse impact on inflation, added Das
-If high inflation is allowed to linger, it could lead to second round effects, said RBI Governor
CPI remains “elevated” due to large adverse supply shocks, firming up of domestic demand: RBI Governor
-MPC was of the view that persistence of inflation necessitates further withdrawal of monetary accommodation, announced RBI Governor
-Inflation is hovering around seven per cent, we expect it to remain elevated at around six per cent in second half, added Shaktikanta Das
RBI hikes repo rate by 50 bps to 5.9% as battle on inflation continues in full swing
-Monetary Policy Committee voted with 5-1 majority to increase repo rate by 50 bps to 5.9%, announced RBI Governor Shaktikanta Das
-Inflation continues to be at alarming high levels across jurisdictions, he added.
-Economic activity in India “remains stable.” It gives us confidence to deal with aggressive policies of other central banks
Dollar drumroll continues; India rupee's needs a guide in RBI
-India's rupee has taken a breather after breaking multiple fresh record lows this week as the forex market awaits the Reserve Bank of India's policy statement.
The external sector indicators do not look good for the currency, including the rather high current account deficit for April-June. Overnight, the dollar's march continues and dollar inflows into Indian equities and bonds haven't broken trend.
-The first quarter current account deficit now stands at 2.8 percent of gross domestic product and economists believe a 3.5 percent CAD for FY23 is now certain. To bridge this CAD, India needs dollars which are going to be rarer as the US Federal Reserve embarks on its tightening spree.
-An expected rate hike today from the RBI could be, at best, a temporary respite from depreciation. The accompanying statement and Governor Shaktikanta Das's comments could offer some succour.
Consensus is for a 50bps hike, says IFA Global ahead of MPC meeting
-The consensus is for a 50bps hike. We expect the RBI to sound confident about growth and focus on inflation. Comments on recent liquidity tightness will be closely followed. Any 'out of the box measures to stem Rupee depreciation would be in focus,'' IFA Global said
Catch RBI Governor Shaktikanta Das' MPC statement LIVE:
-All eyes on the key policy rate announcement, which is likely to be hiked for the fourth time in a row. The RBI is likely to take a cue from its global counterparts to try and tame the rising inflation.
TUNE IN LIVE:https://www.youtube.com/watch?v=meS5fLLArpA
Moneycontrol's Twitter Poll: Ahead of RBI MPC, let us know what you think!
-All eyes are on RBI MPC: As inflation heat looms over MPC, will the panel go for a bigger hike? 🤔
Let us know what do you think!
Where will the repo rate settle ultimately?: Catch MC's Banking Central Column
-The central bank is fighting twin battles at this point. It needs to control inflation that is way above its mid-term target of 4 percent and has been consistently above the upper band of 6 percent. On the other hand, the nascent recovery seen on the economic growth, needs to be supported.
-The central bank-led monetary policy committee (MPC) clearly misjudged the inflation trajectory for a prolonged period in its bid to support growth recovery. The stance remained accommodative for a long time which led to differences even within the panel.
Read More Here
Catch MC Editor's Take: Stagflation-Dinesh Unnikrishnan, Editor-Banking & Finance, Moneycontrol Explains
-Only a few talk about it. But it’s a beast that isn’t easy to tame once comes to life. Stagflation, in simple terms, is a combination—a deadly one—of persistently high inflation, stagnant growth and high level of unemployment.
- If inflation isn’t addressed before it is too late, if growth doesn’t recover and if high unemployment continues, India is likely face the threat of stagflation sometime next fiscal year.
-At least, that’s the fear among economists is. There isn’t an easy escape from stagflation. Often, it stays for years in economies.
MC Editor's Take: Is MPC paying the price for acting too late on prices? Dinesh Unnikrishnan, Editor-Banking & Finance, Moneycontrol Explains
-That’s one view among economists. Post the pandemic, the threat of high inflation was ignored for a longer period by the rate setting panel in search of an elusive growth recovery.
-But in the meanwhile, inflation triggered by both external and domestic factors, went through the roof. Now, the MPC is fighting twin enemies—high inflation and growth slowdown.
-Frankly, the policymakers are left with too few tools to fight a mighty enemy. But, at this point the bigger worry must be inflation. That’s hurting Indian households extremely hard.
WATCH VIDEO: Why aggressive rate hikes by the US Fed are a problem for India | MC Explains with Latha Venkatesh
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Why are the aggressive rate hikes by the United States Federal Reserve a problem for India? The Nifty, Rupee and bonds have all been falling in the wake of the ultra-hawkish tone adopted by the Fed. However, most believe that this time it could be a developed economy problem, especially since India’s inflation is not as much off-target as compared to US. Watch Video Here
Policy guidance critical!, says Dinesh Unnikrishnan, Editor-Banking & Finance, Moneycontrol
-While a rate hike is given, what will be more interesting to watch will be the guidance on future rate hikes. Obviously, consecutive rate hikes in a short span of time comes at a cost.
-Growth recovery will be at risk if interest rates rise too quickly and in such a short while. Growth recovery is still feeble.Will the MPC soften the tone of the language this time indicating smaller rate hikes ahead? Guidance statement will be key to watch.Policy guidance critical!
No too many options before MPC!, says Dinesh Unnikrishnan, Editor-Banking & Finance, Moneycontrol
''No too many options before MPC!''
-The outcome of this policy meet isn’t hard to predict—a rate hike is certain, only the quantum of the hike is debated.
-For Shaktikanta Das and his colleagues at MPC, including the constant outlier Jayanth Varma, the decision this time is an easy one—effect another rate hike to beat the inflation beast.
-In fact, that’s the only tool it has. Will Das and co stick to the ‘new normal’ 50 bps or space out a few smaller rate hikes? The former is likely, but Das has a penchant for surprises. You never know!
RBI MPC: Catch Key Takeaways
RBI may hold more repo auctions to ease liquidity, say bankers ahead of MPC meeting
-The Reserve Bank of India (RBI) is likely to conduct more variable rate repo (VRR) operations to ease tightening liquidity in the banking system that has led to a surge in interbank call rates, bankers said ahead of the three-day monetary policy meeting. Liquidity in the banking system is tightening due to heavy outflow of funds for tax payments, increased credit demand and RBI selling dollars to stem the rupee fall, they said.
-On September 22, the RBI conducted an overnight VRR operation worth Rs 50,000 crore, which saw bids of Rs 94,267 crore. The cutoff rate was at 5.58 percent. The repo rate, or the rate at which RBI lends to banks, is at present 5.40 percent.
Yet another 50 bps rate hike likely today on inflation overhang: Moneycontrol Poll
-The Reserve Bank of India’s rate-setting panel is likely to increase the key policy rate by 50 basis points (bps) at its meeting as inflation continues to be the dominant theme in deliberations, shows a Moneycontrol poll of 20 economists.
-If it happens, a 50 bps increase in the repo rate this week would be the fourth consecutive one since May. That would take the repo rate, at which the RBI lends short-term funds to banks, to 5.90 percent – the highest level since April 2019 – from 5.40 percent currently.
RBI Monetary Policy Live Updates |
Good morning and welcome to Moneycontrol's LIVE coverage of the RBI Monetary Policy today on September 30, 2022. Stay tuned for the latest news, developments, and analysis!
