(Reuters) – The Indian central bank’s key lending rate was held steady on Friday with inflation control remaining a major focus amid expectations of a spike in food prices in coming months and better than expected economic growth.
The six-member monetary policy committee (MPC), consisting of three Reserve Bank of India (RBI) and three external members, kept the repo rate (INREPO=ECI) unchanged at 6.50% in line with the unanimous consensus in a Reuters poll.
The vote on the repo rate decision was also unanimous.
Commentary
Yuvika Singhal, Economist, Quanteco Research, New Delhi Covert In Small Letter
“While Guv (RBI Governor) acknowledged upside risks to the food inflation outlook with pockets of price pressures persisting within some of the key categories, near-term price pressures are likely to be ‘looked-through’.”
“We expect the RBI to be on a prolonged pause, in a bid for headline inflation to align gradually with the 4.0% target. As such, we look at RBI to begin its rate easing cycle in the third quarter of FY25.”
Sakshi Gupta, Principal Economist, HDFC Bank, Gurugram
“The RBI is expected to keep the policy rate unchanged until the middle of 2024. Liquidity conditions are expected to remain tight in the near term.”
Teresa John, Lead Economist, Nirmal Bang, Mumbai
“We do not see much possibility of OMO (open market operations) sales by RBI, particularly with it highlighting the contraction of its balance sheet.”
“We expect a rate cut by June 2024 aligned with global policy easing and just ahead of the expected fall in inflation to 4% in the second quarter of FY25.”
Anuj Puri, Chairman, Anarock Group, Mumbai
“With the fundamentals of the Indian economy remaining strong and the recently announced GDP rates indicating positive outlook, the RBI once again decided to keep the repo rates unchanged. This is an extension of the festive bonanza that RBI gave to the homebuyers in its last policy announcement. It gives homebuyers yet another opportunity to make cost-optimized home purchases.”
Radhika Rao, senior economist, DBS Bank, Singapore
“Outside of autonomous drivers, the RBI is likely to continue to maintain tight liquidity conditions and undertake a targeted approach via macro-prudential measures to check excesses.”
“In concert with the overall emphasis on removing post-pandemic excesses, the RBI will also continue to taper its balance sheet.”
“Optimism over the growth outlook was reflected in the sharp upward revision in the GDP estimates.”
Suvodeep Rakshit, senior economist, Kotak Institutional Equities, Mumbai
“The policy avoided any surprises while retaining a hawkish tone in its communications, as expected. The revised FY2024 GDP growth estimate at 7% was as expected too.”
“We believe that inflation risks remain on the upside for at least next few months from food inflation. The good part is that growth remains resilient and core inflation remains under check.”
“We maintain our call for a prolonged pause on repo rate at 6.5% well into FY2025 while liquidity over the medium term will be aimed at being close to neutral.”
Manoranjan Sharma, chief economist, Infomerics Ratings, New Delhi
“This policy is entirely in conformity with our pre-policy expectations. In view of the evolving growth-inflation trade-off, the MPC took the right call in holding the rates steady.”
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, Mumbai
“The MPC has retained focus on 4% inflation being the medium target, with monetary policy actions to ensure disinflationary trends ahead. We continue to expect prolonged pause by the MPC.”
