Moneycontrol Pro Panorama | RBI behind the curve, the Street's not complaining

Stock Market, Share Market

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

There’s no debating that the Reserve Bank of India’s decision to keep rates unchanged and continue its accommodative stance surprised all. Not without reason.

Until December, inflation has been anything but benign. Global commodity prices are sticky at higher levels. Companies are calling out cost pressures. Inflation is also one cause for rural distress. Add to this, crude oil price rising above $90 a barrel is a poser both at the fiscal and corporate earnings' levels.

Perhaps the Monetary Policy Committee (MPC) has drawn comfort from its forecast of CPI inflation for FY2023 at 4.5 per cent, highly optimistic compared to economists’ consensus of 5.5-6 per cent. Some analysts have rightly questioned whether the RBI’s inflation forecast is being used to justify its dovish stance.

However, the absence of a rate hike has brought the bulls back on the Street. The BSE Sensex and Nifty surged on hearing the MPC decision. Lower interest rates augur well for companies, as cost of borrowing remains low. On another note, equities will continue to outshine fixed income instruments as an asset class.

Stability for loan rates has triggered a sharp rally in real estate, banking and NBFC shares. Money markets are already rising.

Be that as it may, RBI’s decision to stay with an ultra-loose monetary policy raises concerns of continued slack in the economy. My colleague Ravi Krishnan explains in this article that the MPC decision reveals low confidence on growth. Even the quarterly GDP growth forecasts for FY2023 are discomfiting, in that the fourth quarter estimate of 4.5 percent implies a weak start to the next financial year, FY2024. And the annual growth of 7.8 percent projected is even lower than the 8-8.5 percent forecast in the Economic Survey.

The RBI statement also disappointed in that there were no signals of policy normalisation. Arvind Chari, CIO, Quantum Advisors, commented that the backdrop has changed. “Commodity prices pressures remain, the developed world central bankers are normalising monetary policy and we are no longer in crisis. Hence, we do not need crisis time rates and monetary support.”

This leads us to another question. Will the RBI be forced to play catch-up and change its narrative on inflation sooner than later? Even the US Fed that had kept rates low to support growth suddenly transited from its 'inflation is transitory' stance to a narrative of it's 'here to stay'. Economists expect that if inflation does not ebb, a sharp hike in rates down the line may rock the boat of fiscal stability and markets.

Investing insights from our research team

IRCTC – Should you board this train that’s picking up speed?

Is there more steam left in the BSE stock after the staggering rally?

Nykaa: Profitability focus can moderate growth; valuations expensive

ACC Q4 CY21: Steady quarter in a tough environment

Suven Pharma: Steady cash flow conversion opportunity merits attention

What else are we reading?

Chart of the Day | Aluminium prices soar as rising demand meets tightening supply

Has the Chinese challenge peaked?

Start-up Street | Packaged food start-ups: Struggling to take off

From Lex | Private equity: SEC seeks eternal sunshine of the spotless fee sheet (republished from the FT)

Uttar Pradesh Elections | Is BJP facing headwinds from SP-RLD combine?

LIC IPO will create new precedents, new issues of corporate governance

And in Learn Crypto Learn | How is investment in crypto different from that of shares, MFs?

Technical Picks

NALCO, Tata Chemicals, Shree Renuka Sugar and Coal India(These are published every trading day before markets open and can be read on the app)
Vatsala Kamat
Moneycontrol Pro