In the recent gathering of the Monetary Policy Committee (MPC), the Reserve Bank of India (RBI) opted to keep the policy repo rate steady at 6.5%, maintaining a consistent stance since April 2023. This decision arises amid persisting concerns over retail inflation, exceeding the targeted 4%. The noteworthy aspects of the meeting encompass the status quo on the repo rate, economic projections, regulatory measures, and reactions from financial experts, shedding light on the potential market implications.
The MPC, with a 5:1 majority, affirmed the unchanged repo rate of 6.5%, citing ongoing concerns about retail inflation, with a projected Consumer Price Index (CPI) of 5.4% for FY24 and a subsequent target of 4.5% for FY25. The RBI foresees an optimistic 7% real GDP growth for FY25, emphasizing a shift from an accommodative stance to ensure stability.
The impact of geopolitical tensions on supply chains and commodity prices, particularly crude oil, was highlighted by RBI Governor Shaktikanta Das. He noted a positive momentum in the investment cycle, attributed to sustained government capital expenditure.
On the regulatory front, lenders are now required to furnish key fact statements for loans to retail and MSME borrowers. Furthermore, the RBI announced plans for offline e-rupee transactions and the introduction of a principal-based authentication system for digital payments.
Financial experts provided varied insights into the RBI’s decision and its potential implications. Rajani Sinha, Chief Economist at CareEdge Ratings, anticipates cautiousness from the RBI due to the risk posed by high food inflation, with a possibility of a shallow rate cut later in the year. Palka Arora Chopra from Master Capital views the policy decision as a non-event for the common man, suggesting that stable interest rates could benefit banking, finance, and consumer durables, while having minimal impact on technology, healthcare, and utilities. Raghvendra Nath of Ladderup Wealth notes the expected unchanged repo rate aligns with market expectations, with potential rate reductions hinging on similar moves by the United States to mitigate capital outflow risks.
RBI’s decision to maintain the repo rate and its economic projections for FY25 have generated diverse opinions among experts. While immediate market responses may be subdued, the ongoing geopolitical landscape and its impact on inflation will remain pivotal. Investors are likely to exercise caution, monitoring further policy cues in the coming months.