Shaktikanta Das said the inflation-adjusted, real interest rate remains below pre-pandemic levels and liquidity remains surplus, albeit lower than during the pandemic.
The Reserve Bank of India on Wednesday raised its key repo rate by a quarter percentage point as expected but surprised markets by opening the door for more tightening, saying core inflation remained high.
The central bank said its policy stance remains focused on withdrawing housing, with four out of six members voting in favor of that position.
Here's what experts have to say after the latest hike in key repo rate by RBI:
The credit policy of RBI is on expected lines. Key indicators showing stability. A growth of 7% for the current year and 6.4% for FY24. Inflation is also coming within range and at 6.5% for the current year and 5.3% in FY24. The position is better on both the currency performance and FX reserves front. ANMI President Kamlesh Shah said, the overall policy is in line with market expectations.
“Today's hike of 25 basis points by the Reserve Bank of India is in line with consensus expectations. However, we felt that this time the probability of rate stagnation was at least 50%. On the inflation front, a major moderation in India after April 2022 was the main reason for us to expect a pause in this policy. On the contrary, it seems that the Reserve Bank of India is more concerned about high and stable core inflation for more than a year. More importantly, the successive rate hikes by the Bank of England, ECB and the US Federal Reserve and their impact on the forex market influenced the Reserve Bank of India's decision to hike another rate. Unless there is an unexpected spike in inflation, we would expect the Reserve Bank of India to keep the policy rate unchanged for the remainder of 2023. This will be positive for both debt and equity markets," said Sujan Hazra, chief economist and executive director, Anand Rathi Shares and the stockbroker on the reasons for the rise.
On expected lines, the RBI has gone for a small dose of 25 basis points increase in the repo rate, keeping in view the moderation of inflation but need for continued vigilance on core inflation.
CPAI President Narinder Wadhwa said, the overall stance has been maintained and has not yet shifted to neutral, which reflects the RBI's approach to meet the challenges of the growth vs inflation matrix.
Ongoing uncertainties and a volatile global scenario have prompted the RBI to revise down its GDP growth forecast for next year to 6.4%, which though is still comparable with peers. The stock market is expected to respond positively to the measures announced by the Reserve Bank of India, with the economy's inherent resilience being at the forefront. RBI has also announced measures to widen the government securities market by amending the mechanism for lending and borrowing of government securities which will provide depth to the market and facilitate government borrowing for the next financial year. The banking sector is also expected to respond positively with positive credit growth and positive real interest rate to depositors. Overall a pragmatic approach was adopted by the RBI with the intention of providing immediate attention to inflation while supporting growth over the medium term, said Jyoti Prakash Gadia, Managing Director, Resurgent India.
RBI-MPC voted to increase the repo rate by 25 basis points to 6.5 per cent, this appears to be the final rate hike in the coming days to keep inflation under control, which is targeted for 4% in 2024, we The later part of the year may see a reduction in the rate. There can be an atmosphere of happiness in the capital market
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