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The Monetary Policy Committee’s decision to hike interest rates by 50 basis points today takes the total hike in this cycle to 190 basis points. That's not good news for borrowers. If you are a home loan customer with a 20-year loan of Rs 50 lakh, and your interest rate were to rise from 8 percent to 9.9 percent, then your EMI will increase by 14.5 percent. Sure, fixed deposits will earn you more, but the increase will not mirror that in loans, as the field is skewed against savers. The government has increased small savings rates, after leaving them unchanged for nine successive quarters, by a princely 30 basis points.
The rate hike itself was no surprise as several forecasters had said a 50 bps hike was certain, given international developments that had led to the dollar strengthening against the rupee. We had sketched out the pre-policy scenario in the September 26 edition of Panorama.
What happened today? My colleague and resident banking expert, Ravi Krishnan, has done the hard work of analysing the policy statement and the governor’s comments. The MPC remains hawk-eyed and while the policy rate may have risen to 5.9 percent, it’s still in ‘withdrawal of accommodation’ mode. Real rates—minus inflation that is—are still negative, which means as a saver you are still unprotected from inflation, tough luck.
The MPC has downgraded its growth projection for the economy, which is not a surprise, but it’s still healthy enough to cope with higher rates. It has also cooed about inflation expecting to soften in the December quarter. That’s a pat on its back in advance for reining in inflation. But is that projection realistic, given the volatility we are seeing? Do read our analysis of the MPC’s decision to know more. Opec+ is miffed by falling crude oil prices and is meeting next week, and if it decides to cut production, prices could increase again.
The stock market seems to be happy the policy contained no surprises. And, if the next policy marks the peak of rate hikes, then that’s one worry less to obsess over. Ananya Roy writes in today’s edition about valuations becoming reasonable and while they could, ahem, get more reasonable, she says those who missed out on the 2020 fall to add to equities have another opportunity here. The Nifty is trading at its most attractive level since 2016.
Our writers have bravely played the role of a damp squib when euphoria was on the Street and likewise in gloom we rely on the weight of experience to tell investors to not be frozen in fear. As always, pay attention to asset allocation and speak to your advisor if you have one before taking money decisions. For stock ideas, you can always look to our in-house research team. Read below for today’s picks.
Investing insights from our research team Weekly Tactical Pick: This stock offers high dividend yield, safety
Mahindra Finance: Poised for growth with near-term hiccups Tracker
Monsoon Watch 2022 | Late-stage rainfall may impact harvesting
What else are we reading?
As K-shaped recovery digs its heels in, the way to tackle it
The Green Pivot: Will Tata Motors’ electrifying bet on small cars be a gamechanger?
The moonlighting debate is focused on the wrong end of the pyramid
Churn in India’s food and beverages market will intensify
Personal Finance: PE funds are ballooning, but so are the risks
Strong dollar hits airlines as costs surge (republished from the FT)
Mars’ outgoing CEO on succession, family businesses and eating his own dog food (republished from the FT)
Politics | What ban on Popular Front of India means to Kerala’s politics
Ashok Gehlot | Veteran Congress loyalist with a vengeance that has led to a ‘revolt’ Technical Picks: Maruti Suzuki, Guar gum, KRBL, Dr Reddy’s and Titan (These are published every trading day before markets open and can be read on the app)
Ravi Ananthanarayanan
Moneycontrol Pro
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