On the expected lines, the RBI MPC has raised the policy repo rate by 50 basis points. Here are insightful viewpoints on the MPC’s decision from some of the leading BFSI stakeholders and economists.
Pralay Mondal, MD & CEO, CSB Bank
Central Bank has kept macroeconomic stability as the top priority with an eye on liquidity conditions, inflation, growth, forex reserve, and current account deficit. The external debt to GDP ratio is the lowest in India amongst larger economies, representing our relative strength. RBI’s thinking of probability-based loan loss provisions is a prudent step in the right direction.
Rajeev Radhakrishnan, CIO-Fixed Income, SBI Mutual Fund
The impact of external monetary tightening measures and their spillover effects have been evident in the policy stance and action. To the extent that these factors prevail over the coming months, the terminal policy rate expectation locally could reset a bit higher. However, the overall focus on moderating surplus liquidity and adjusting policy rates to ensure real positive rates remains positive from a medium-term perspective. In the near term, with higher inflation prints and a reasonably heavy auction calendar alongside external headwinds, yields could move higher. The thesis of gradual addition to duration holds even as there could be a modest uptick in the terminal rate expectation.
Avnish Jain, Head Fixed Income, Canara Robeco AMC
While inflation in India has not been so high, it has still been above MPC’s target of 6% since the start of fiscal 2023. Indian macro conditions have been relatively better with sound GDP growth, and moderating inflation, though the external sector has been under pressure due to high commodity prices, and portfolio outflows. However, the Indian currency has fared much better in comparison to some emerging market currencies as well as developed market currencies. 10Y G-SEC rose to 7.40%, just before the policy announcement, and recovered to trade around 7.33-34%. In the short term, the 10Y yield may trade in 7.20-7.40% range.
Shanti Ekambaram, Wholetime Director – Designate and Group President, Kotak Mahindra Bank
Indian macroeconomic metrics and growth continued to be resilient amidst volatility in the global economic and financial markets due to aggressive tightening by global central banks. Private consumption and investment demand in India continued to be strong, service exports are at an all-time high and capacity utilisation in the manufacturing sector has been increasing. Overall, RBI will continue a calibrated strategy of ensuring price and financial stability while supporting growth. We expect further rate hikes.
Anu Aggarwal, President & Head of Corporate Banking, Kotak Mahindra Bank
The rise in rates will slowdown Capex plans of Corporate India which were just about kicking off
Dipanwita Mazumdar, Economist, Bank of Baroda
Our terminal repo forecast stands at 6.5%, thus a rate hike of another 50-60bps in the current cycle seems feasible, transmission to MCLR could be another 20-30bps, 10Y GSec yield is likely to trade in the range of 7.3-7.4% in the near term.
Ms. Madhavi Arora, Lead Economist, Emkay Global Financial Services
Clearly, the fast-evolving world order and consistent repricing of the 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 in 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. 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 the terminal rate could hover near the estimated real rates, implying not more than 100bps hikes ahead, including today’s decision.
Suman Chowdhury, Chief Analytics Officer, Acuité Ratings & Research: The possibility of an additional hike in Q3FY23 is borne out of RBI’s expectation that inflation will not come down in a hurry, given that they have projected an average CPI print of 6.5% in the next quarter, well above the upper MPC band. To ensure that the monetary transmission is efficient in the current upcycle, RBI has also reduced the surplus liquidity in the system significantly in Q2 and this has also been partly driven by the pickup in credit growth. We expect a significant hike in deposit rates by banks up to 50-150 bps in H2FY23.
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