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Decision to calibrate liquidity depends on evolving scenario: SBI Chairman

The recent Monetary Policy announcement by the RBI has sparked intriguing insights and opinions from prominent voices within the BFSI sector. These seasoned voices have dissected the implications and intricacies of the central bank’s decisions, offering a comprehensive look into the multifaceted economic landscape.

Dinesh Khara, Chairman, SBI: The ability of RBI to remain steadfast and focused on pitching key growth deliverables, bodes well even as global uncertainties pick pace outside. The inclusion of PM Vishwakarma scheme in PIDF will enhance market breadth and depth benefitting small scale artisans. The IRAC norms proposed for key infrastructure projects could rekindle incremental investment appetite. The strengthening of Ombudsman Scheme will further promote the interest of customers. The decision to calibrate liquidity will depend much on evolving scenario.”

Subhrakant Panda, President, FICCI: RBI has kept the repo rate and overall stance unchanged as was largely expected, emphasising on withdrawal of accommodation and supporting growth. Inflation needs to be closely monitored, but it seems to have peaked and a correction in prices over the near term looks probable. In line with the MPC’s observation on recurring food price shocks impacting both the inflation trajectory and its persistence, FICCI reiterates that de-risking food supply chains from weather related disruptions should be a priority. This calls for a comprehensive roadmap and coordinated action at multiple levels. Further, FICCI looks forward to the draft omnibus framework pertaining to recognising SRO for various REs of the RBI as stakeholder consultations will lead to a more robust outcome.

Indranil Pan, Chief Economist, YES BANK: This policy was on expected lines with no change in the policy rate as also the stance. Even as food inflation and core inflation had been moderating, the RBI rightly desisted from providing any dovish bent to the policy communication. On the other hand, the future guidance was laced with adequate cautionary notes on the inflation trajectory and the risks to the same coming from uncertainties over the kharif output, lower reservoir levels and volatile global crude and commodity prices. And there is a clear reverberation of the previous policy – that the RBI will only be happy if they are able to hit the 4% mark on inflation on a durable basis. Unexpected by all, the RBI announces that OMO sales also becomes a policy tool for the future in its efforts to suck out liquidity. This is important even from a longer perspective, given that India could be expecting large FX flows in FY25 on the back of JPM bond index inclusion.”

Suman Chowdhury, Chief Economist and Head of Research, Acuité Ratings & Research: The expectation of strong demand during the festive season (mostly Q3) has been an important driver of increased economic activity. The strength of rural demand in particular amidst a deficient monsoon and higher food prices will be a monitorable in the second half of the year. Nevertheless, high investment activity through government capital expenditure and a gradual rise in private sector capex will facilitate a healthy GDP growth in FY24.

Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life: The RBI maintained the status quo on policy rates and stance, aligning with the market expectations. The headline CPI projection for FY24 remains unchanged at 5.4%, despite uncertainties around production due to the lower kharif sowing, low reservoir levels, and volatile global food and energy prices. The RBI governor reiterated the intention to bring inflation to a level of 4% on a durable basis. In line with its monetary policy stance, the RBI may need to consider OMO-sales to manage liquidity as necessary. Given recent inflationary pressures driven by food and vegetable prices in India, the extended tightening measures by global central banks, and the RBI’s commitment to lower domestic inflation to 4%, the outlook for interest rates appears cautious in the near term. The possibility of OMO-sales to manage liquidity may pose short-term pressure on interest rates. We believe that the RBI’s future actions will depend on evolving data, and we continue to expect a long pause.

Prasenjit Basu, Chief Economist, ICICI Securities: Unsurprisingly, the RBI’s MPC decided to keep its policy rate unchanged at 6.5% and retained its stance of ‘withdrawal of accommodation’. The key change is a much more benign inflation forecast, suggesting that the RBI expects CPI inflation to go well below 6% YoY in September’23, and to stay at 5.6% YoY in October-December’23 and 5.2% YoY in January-March’24. We continue to expect the next policy move to be a rate cut in Q1FY25.

Achala Jethmalani, Economist, RBL Bank:  In line with our expectations, the MPC maintained a status-quo on policy rates and stance. We view it as a ‘hawkish hold’ on policy rates as the focus remains on bringing inflation down to the 4.0% target. The RBI’s comments on existing banking system liquidity is indicative of tighter system liquidity conditions continuing as it stands ready to deploy all its tools to absorb excess system liquidity. Brace for a long pause on the Repo Rate with tighter liquidity conditions. This is expected to complete the policy transmission in this hiking cycle with the objective of keeping borrowing costs high. The resilience in economic growth despite the restrictive financial conditions underpin the RBI’s move to tighten the liquidity conditions.”

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