RBI’s April MPC Meet on Repo Rate | Reactions from Business Leaders

Reserve Bank of India convened a Monetary Policy Committee meeting for three days headed by Governor Shaktikanta Das. The policy stance of unchanged repo rate still remains the same as decided at the February meet. On that note, industry leaders are sharing their outlook and impact of the decision.

Parijat Agrawal, Head – Fixed Income, Union Mutual Fund

As expected MPC kept the policy rate and stance unchanged. The softening of core inflation gives sufficient room to MPC, however volatile food inflation and recent uptick in crude and other commodity prices is to be watched and MPC kept the full year’s projection at 4.5%. The strong momentum in growth also gave comfort to MPC to align the CPI on a durable basis to 4%. We expect rate cuts in the 3rd quarter of FY 25, possibly after the US FOMC starts rate cut cycle. RBI is expected to keep liquidity neutral so that further transmission of higher rates can continue. There is a possibility of modification of the LCR framework  going forward which may augur well for bonds.

Vikrant Mehta, Head – Fixed Income, ITI Mutual Fund

The MPC meeting’s decision on the policy rate and stance were on expected lines, which pushed bonds in a tight range post policy. With strong US data keeping global markets guessing on the timing of the US Fed rate cut, it appears that the RBI may want to see some further traction on the same before moderating its policy stance and then towards an eventual easing of the policy rate.

Mandar Pitale, Head Treasury, SBM Bank (India) Limited

MPC has delivered policy verdict on expected lines with a firm commitment to focus on a 4% goal post for CPI securing using appropriate monetary policy tools. Robust growth expected in the near future will provide the policy space to remain focused on inflation. Recent volatility in Crude prices with a bias to move up and elevated food inflation will remain on the top of MPC watchlist.

The review of LCR framework for managing liquidity risk, due to the increased ability of the depositors to quickly withdraw or transfer deposits during times of stress, using digital banking channels may result in more liquidity buffer to be maintained by Banks.

Forecasted CPI inflation for Q1 FY 24-25 is 4.9% and is further forecasted significantly lower to 3.9% in Q2. This may be considered as a lead indicator to estimate the first policy rate easing in October MPC preceded by the probable change of stance to “neutral” in August MPC meeting; if the inflation trajectory turns out as projected by MPC.

Saurav Ghosh, Co-Founder, Jiraaf

RBI keeping key repo rate unchanged at 6.50% is in line with expectations given the core inflation has reduced and growth rate projections are in line with expectations. This is good for the broader industry at this time as it adds stability and predictability. For retail investors, this is a great time to invest in fixed income products and they can continue to enjoy and lock in high yields now across various products such as government bonds, corporate bonds, and fixed deposit (FD) instruments.

Kush, CEO, Essar Power

The prudence of the RBI’s decision to maintain the repo rate at 6.5%, reflects a measured response to the dynamic global economic landscape. RBI’s emphasis on domestic factors showcases its commitment to financial stability and the crucial role of sustenance in navigating market uncertainties. The well measured policy stance will support the energy sector’s long-term sustainability and robustness, aligning with the industry’s vision for a cleaner and greener future. This decision highlights the significance of RBI’s initiatives in fostering economic growth, demonstrating a careful balance between economic expansion and inflation management.

Murthy Nagarajan, Head – Fixed Income, Tata Asset Management

The monetary policy was on expected lines with repo rates maintained at 6.50%. GDP Growth was maintained at 7.00% for the current financial year. CPI inflation for current year is expected to be at 4.50%. RBI again reiterated its stance of bringing CPI inflation to 4.00% levels on a durable basis and maintained that the last mile of bringing the CPI inflation to the 4% level is the toughest. The Rupee is expected to trade in the band of 83 to 85 against the dollar due to FII inflows in debt. RBI is expected to follow the US federal Reserve in cutting rates provided monsoons are normal and commodity prices remain range bound. The ten-year yield is expected to be trade in the band of 7.00% to 7.15% levels as rate cut expectation is pushed to the second half of this financial year.

Akhil Mittal, Senior Fund Manager, Tata Asset Management

Monetary policy was largely on expected lines, with no change in stance or policy rates. Governor mentioned continued focus to get inflation within target zone on sustainable basis, thereby indicating no near term likely hood of policy easing. Growth forecast have been largely left unchanged and inflation (CPI) forecast has been bought down by approx. 10 bps. With financial markets passing through tough economic cycles and geo-political uncertainty still prevailing, RBI has chosen path of stability, and hence policy is expected to be directed on same lines. We do not expect much impact in markets, though we do expect some bit of steepness in yield curve (from the current virtually flat curve).

Ankush Kaul, chief business officer – Ambience Group

RBI has once again satisfied the buyers’ sentiments by keeping the repo rates unchanged at 6.50% for the seventh consecutive time. This will not only stabilize the interest rates for prospective buyers but will also keep the public’s faith in the authorities intact with the elections around the corner. It is a welcome move and we anticipate that the upward trajectory that the real estate sector is sailing on shall continue. This decision shall be beneficial for both borrowers as well as developers bringing an equilibrium in financial volatility.

Nayan Raheja, Raheja Developers

The growth trajectory of the realty sector remains positive, consumption is rising, and more and more people are investing in the mid, premium, and luxury housing sectors. The developers, on their part, have increased the pace of new launches, as exhibited by the recent Q1 report. India is firmly on the path of progress, and the decision by RBI to not disturb the pace by keeping the repo rate unchanged will enthuse the sector as it will also provide some relief to borrowers as their EMIs will not rise.

Avneesh Sood, Director Eros Group

As the RBI maintains the repo rate at 6.5%, it demonstrates a prudent approach towards balancing economic stability and growth. This decision, upheld for the seventh consecutive time, instills confidence within the real estate sector. With stable interest rates, homebuyers can proceed with assurance, fostering sustained development in the housing market. Notably, the stability in the repo rate directly impacts the lending landscape, with potential implications on home loan EMIs. For instance, with over 60% of home loans in India being on floating interest rates, any alteration in the repo rate could significantly influence borrowing costs. This steady stance by the RBI aligns with the ongoing efforts to bolster economic resilience, paving the way for a conducive environment for investment and growth in the real estate sector. We anticipate this stability to further buoy consumer sentiment and facilitate robust growth in the coming quarters.

George Alexander Muthoot, MD, Muthoot Finance

On expected lines the RBI kept the policy repo rate unchanged while maintaining the stance on ‘withdrawal of accommodation’. While the RBI does remain cautious on the inflation front, we believe moderating inflationary pressures, coupled with the realization of normal monsoon may open up the possibility of rate cuts by the RBI in first half of fiscal 2024-25. We are encouraged by the resilience of the global economy, continued economic growth momentum in India, coupled with relative rupee stability. Steady pick up in investment activity and strengthening of rural demand conditions bode well for the economy and further fuels our optimism towards steady demand for gold loans, vehicle loans and home loans during the year.

We appreciate RBI’s initiative of regularly engaging with multiple stakeholders to simplify regulations and reduce compliance burden. The implementation of recommendations of the Regulations Review Authority (RRA 2.0) is a testament of the RBI’s commitment. At Muthoot Finance, we remain committed to maintaining the highest standards of corporate governance and compliance. We are in alignment with RBI’s view point that regulated entities should prioritise compliance and corporate governance and we believe this is paramount for ensuring sustainable growth for India while also safeguarding customers’ interests.

Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank

The status quo on the repo rate was on expected lines. The central bank recognized India’s resilient macro backdrop leading to greater policy space for the RBI. However, the central bank does not seem to be in any rush to start cutting the repo rate.

While the RBI kept the FY25 CPI forecast unchanged at 4.5%, interestingly, for the first two-quarters CPI was further lowered, potentially to a sub-4% zone. That will push the real repo rate (ie., the difference between the repo rate and inflation) beyond 2% for a while, strengthening the case for repo rate cuts later this year.

However, the timing of RBI rate easing will involve several other factors. Most of the major global central banks appear to be cautious to start easing policy rates. While the US Fed is expected to start easing rates in June, such expectations altered several times in recent months and are far from certain. Against that backdrop and given that the RBI’s legroom for the repo rate from the current 6.50% is likely limited to only 50-100 basis points, one maintains that a rate cut by RBI is unlikely before August.

While the MPC decided to keep the stance of the policy unchanged today, one sees merit in considering changing the stance of monetary policy to “neutral” sooner than later. The MPC adopted “withdrawal of accommodation” as the stance of monetary policy since April 2022. Since then, policy rates were pushed higher till February 2023. For the next one year, the RBI absorbed a large quantum of excess liquidity from the banking system. However, now the RBI will likely move sideways for a few months both on the rates and liquidity front. Accordingly, one feels that the case for a change in policy stance to “neutral” in the coming MPC meetings is stronger now.

G Hari Babu, National President of NAREDCO

The RBI’s decision to maintain the repo rate underscores confidence in the nation’s economic fundamentals, setting an encouraging tone for the new financial year. With GDP projected to grow at 7% in FY25, this decision bodes well for sustained growth in the real estate sector. It signifies a conducive environment for economic development and positively impacts both residential and commercial segments. While the current interest rate remains at its highest in four years, we urge the RBI to consider our appeal in its forthcoming review meeting. The confirmation of decreasing inflation and improved liquidity fosters a favorable environment for growth, complemented by the resilience of the global economy and domestic expansion. This facilitates affordable borrowing, incentivizing developers and homebuyers alike, thereby catalyzing robust growth in the real estate market.

Pyush Lohia, Director, Lohia Worldspace

The RBI’s decision to maintain the repo rate is a strategic victory for real estate developers, including those focusing on tier-2 cities. The stability it brings creates a conducive environment for investment. The acknowledgment of decreasing inflation and improved liquidity further boosts confidence. Additionally, the sustained global economic resilience and expanding domestic activity signal growth opportunities in tier 2 cities too. This decision facilitates affordable borrowing, encouraging developers to initiate projects and enabling homebuyers to invest. It is a promising outlook for real estate development.

Pankaj Kumar Jain, Director, KW Group

In an effort to keep inflation under control, the RBI has decided to maintain the repo rate at 6.5 basis points for the seventh time. The industry would have welcomed a rate cut, but an increase would not have been ideal because buyers have already acceded to the current interest rates, so an unchanged rate is still preferable to an increased rate”. ‘The sector has been experiencing optimism for more than a year, and given the recent uptick in the rate of economic growth, the industry anticipates further reductions.

Keep watching this space for more updates.