Quite expectedly, RBI kept the Repo rate unchanged, citing that it needs time to assess the lag impact of the cumulative 250bps rate hikes Says Amar Amabani, Yes Securitie
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Below Quote On RBI MPC by Mr. Amar Ambani, Group President & Head of Institutional Equities, YES Securities.
“Quite expectedly, RBI kept the Repo rate unchanged, citing that it needs time to assess the lag impact of the cumulative 250bps rate hikes, while the inflation trajectory has favourably turned south. Monetary tightening has been paused and we believe it’s the end of the rate hike cycle.
The central maintained its stance on the withdrawal of accommodation. We expected a status quo on the stance, as the world central bankers are still raising rates, even if they are at their fag end of rate hikes too. The global situation is also a precarious one and the RBI will want to observe for a while.
The decision on the stance was not unanimous, with one member dissenting on the same. We can attribute the dissent to the fact that, although liquidity conditions have improved lately due to higher government spending and gradual withdrawal of Rs 2,000 denomination notes, this is a rapidly changing variable and the surplus in the banking system is expected to wane, on account of advance tax outflows and growing credit demand. Nevertheless, RBI will manage liquidity in a calibrated manner, characterised by Variable Repo and Reverse Repo operations, whenever the need arises.
On projections, RBI sees FY24 GDP growing at 6.5% (unchanged), while headline inflation is seen averaging 5.1%, a tad lower than the earlier estimate of 5.2%. Although the inflation outlook has turned favourable (real rates are projected to stay positive), RBI alluded that the inflation level within the tolerance band does not yet warrant a rate cut. We believe inflation is on a sustained decline with lag impact of RBI rate hikes and prices of commodities declining drastically. Our reading is that disrupted supply across the world is back on stream and therefore fall in price of coal, natural gas, oil, steel, wheat, lumber, palm oil, milk etc are sustainable. RBI is bound to change stance in time to come.”
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