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Below Quote on RBI MPC Announcement by Divam Sharma, smallcase Manager, CEO and Co-Founder - Green Portfolio

The MPC gave a non-event policy announcement, much in line with expectations. The RBI MPC announcements are in sync with recent interim budget announcements to ensure fiscal prudence considering ongoing economic growth and global uncertainties. Taking on the global cues, RBI has kept the rates stable giving out a very hawkish statement. We might see rate cuts in the second half of the year, in the August meeting post-elections. In addition, currently, consumption growth is slowing but credit growth is rather robust so cutting rates in such red hot economy is not possible.

Despite the increased headline inflation driven by food which still remains a concern for the economy, the bank showed confidence in reducing the inflation maintaining the 4% target. The withdrawal of accommodation stance has been maintained to keep inflation under check. The interest rates higher for longer theory is in play here. A neutral stance and then accommodative stances follow the withdrawal of the accommodation statement in monetary policy, but a neutral stance wasn’t given disappointing market expectations, this will come in the longer run.

The RBI is very bullish on the economy’s growth. The growth outlook is robust, the GDP forecast for FY25 Q1 has been increased to 7.2%. This is very much in line with the outstanding growth that India has been experiencing.

Post the announcement, the 10-year bond yields have increased as liquidity is expected to be kept tight with the central bank’s hawkish statement. This statement may not play out a lot for equity markets but the hawkish stance will impact borrowing and banks. Additional disclosure from banks is positive for consumers and might impact the earnings of banks as we are moving from an era of hidden charges to transparency. This announcement might impact private banks negatively.

Markets, because of a stable stance by RBI did not see much fluctuation after the announcement despite the initial enthusiasm. Markets remain unaffected but investors should stay cautious as volatility is expected going forward.

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