Mumbai, 8th June 2023 (GNI): RBI Monetary Policy Committee (MPC) has kept the repo rate unchanged at 6.5%.
Manish Jain, Fund Manager, Coffee Can PMS, Ambit Asset Management, has shared his commentary on the market outlook.
Please look at his views below, and let us know if you need any further inputs from Ambit.
Quote:
RBI adopts its realistic approach of balancing growth & inflation dynamics, decoupling from the global economy. Also, the past 2 months of CPI inflation is below the RBI tolerance limit, which gives comfort to the RBI to keep the repo rate & stance unchanged. The sharp swing between WPI & CPI spread from positive 880bps in May’22 to negative 560bps in Apr’23 will benefit the gross margins of consumer-facing sectors.ends
Find below Mr. Soumitra Majumdar, Partner, JSA views on the Monetary Policy announced by the RBI earlier today.
“RBI’s monetary policy statement do significantly allay fears of economic slowdowns in India. The Indian economy should be able to weather several risks and geo-political tensions plaguing several developed economies and prove to be a stable and consistent investment destination. Though showing positive trends, however, inflation continues to remain the centre of RBI’ attention. Cleaner balance sheets of banks and corporates coupled with the liquidity holds promise of larger capital expenditure by both the public and private sectors. Bank’s ability to fix their inter- institutional borrowing limits testifies the sectoral strength. The proposed amendments to the stressed assets resolution circular of June 7, 2019 for including specific guidelines for compromises and settlements with borrowers, is definitely a welcome move. This will help expediting closure of settlement proposals under a certain regulatory framework – promising further cleansing of bank and corporate books, with renewed focus on further credit and business growth. Regulations for restructuring borrower accounts hit by natural calamities is again a positive move for the economy. Thrust on developing and securing the digital lending ecosystem also holds promise for credit penetration and demand- driven growth.”end
Below the quote by Mr. Suresh Khatanhar, Deputy Managing Director, IDBI Bank on RBI Monetary Policy:
“With inflation continuing to slide, the MPC’s decision to maintain a status quo on repo rates is on expected lines. Though the Indian economy continues to remain fairly resilient, the pause in the rate hike cycle augurs well as it would further help in arresting inflation, boosting investment and consumption sentiments. The lowering of the inflation projection for FY24 to 5.1% signals towards a higher GDP growth and credit offtake can be expected to be higher. However, RBIs readiness in taking quick decisions in case of any divergence from present expectations on the inflationary front calls for cautionary optimism across the board.”ends
Below the quote by Mr. Dhiraj Relli, MD & CEO, HDFC Securities viewson the Monetary Policy announced by the RBI earlier today.
“The RBI MPC left the repo rates unchanged at its meet on June 08 in line with street expectations. MPC members were in a sweet spot in the backdrop of higher than expected GDP numbers and moderating headline and core inflation print.
The MPC continued with the ‘withdrawal of accommodation’ stance (with 5:1 majority), as liquidity has turned into significant surplus mode further increased by the impact of withdrawal of Rs 2000 notes. A sustained moderation in inflation going forward may prompt the shift from “withdrawal of accommodation” to “neutral” stance.
India’s economic activity has continued to demonstrate resilience. RBI retained its GDP forecast at 6.5% in FY24.
Given the uncertainties around the impact of El-Nino conditions leading to sub-par monsoon in 2023, RBI remained cautious and revised the inflation projection by only 10bps to 5.1% for FY24. RBI Governor stressed on moving towards the primary target of 4% inflation. In this backdrop, expectation of rate cut in this calendar year seems to be faded. We expect the first rate cut perhaps in Feb 2024.”ends
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Below the quote by Mr. Abheek Barua, Chief Economist, HDFC Bank, commentary on RBI Monetary Policy
The A status quo policy delivered by the central bank today, keeping both the policy rate and stance unchanged. The RBI continued to be rather upbeat on growth, revising up its Q1 growth forecast to 8%, while retaining its annual forecast at 6.5% — which is higher than our estimate of 6-6.2%. On inflation, the central bank recognised the near-term easing in inflationary pressures while being cautious about the future trajectory.
The central bank lowered its inflation forecast only marginally to 5.1% and seems to be building in a buffer for any food prices spikes due to weather related disturbances during the monsoon season. If indeed these risks do not pan out, inflation could be lower than the RBI’s projections leading to subsequent communications becoming more dovish.
Today’s policy decision does little to move the needle in the bond market as it was broadly in line with expectations. Any rate cut expectations in 2023 that was being built up in the market are likely to be pushed forward for now.ends
Below is a quote from Mr. Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani on RBI’s Monetary Policy Announcement from today
“The committee’s decision to maintain the present repo rate is a positive and promising step for the real estate market. By recognizing the controlled inflation, the MPC’s stance offers a ray of hope for potential homebuyers. This move is also expected to further fuel the remarkable growth witnessed in the Indian real estate market since the beginning of the year. This steady repo rate not only brings relief to the industry but also stimulates construction and infrastructure development. It ensures a favorable lending environment for developers, encouraging them to embark on new projects with stable interest rates.”ends
HDFC Bank’s, RBI Policy Review: Status Quo with some caution
RBI Policy Review: Status Quo with some caution
The RBI kept its policy rate and stance unchanged today as expected. The central bank’s commentary on growth remained upbeat while it recognised the recent easing pressure on inflation. Although, the RBI remained more cautious about the future trajectory of inflation and emphasised that it remains committed to anchoring inflation
close to 4%. We think that this resolve to do “whatever is necessary” to bring inflation down on a sustained basis to the median target is likely to push forward rate cut expectations that some sections of the market had started pricing in for as early as October 2023. That said, it does not mean that the RBI will keep rates on hold until inflation actually reaches 4%. We think that once the inflation uncertainty moderates and a path towards the 4% target is visible, the RBI could start its rate cut cycle if growth conditions so demand. We do not see this happening before Q1 2024.
Growth and Inflation: The RBI retained its growth forecast at 6.5% for FY24 and revised up its Q1 & Q2 forecast to 8% and 6.5% respectively. For inflation, the RBI recognised the moderating near-term pressures on inflation,
revising down its Q1 FY24 estimate to 4.6% (from 5.1% earlier). However, it kept its forecasts for the second half unchanged at an average of 5.3% and seemed to be more cautious – perhaps factoring in a negative impact from any food price spikes due to weather related disturbances during the monsoon season. For the year, the RBI only marginally revised down its inflation forecast to 5.1% from 5.2% earlier.
The Australian Met office yesterday shifted its El Nino outlook from a watch to alert and suggested a 70% probability of an El Nino event developing through the year. Although, the development of a positive Indian Ocean Dipole (IOD) – which leads to higher rainfall in India – could act as some sort of offset if El Nino conditions do develop. The interaction of these opposing weather disturbances would be critical in determining both the inflationNand rural recovery outlook over the coming months. If indeed the conditions are more benign, inflation could be lower than the RBI’s projections leading to subsequent communications becoming more dovish. We continue to hold on to our inflation forecast of 4.8% for FY24 and project GDP growth at 6%.
Liquidity: Liquidity conditions have improved over the last few weeks (with system liquidity average at INR 2 lakh Cr) led by the withdrawal of 2000 rupee notes (50% of the INR 3.6 lakh Cr has come back of which 85% have been in bank deposits), redemptions of G-sec securities, and rise in government spending. The RBI has continued to manage liquidity conditions through VRRR and VRR auctions. For now, these could remain as the preferred tools for liquidity management. In the post policy press conference, the RBI mentioned that they would like to align the overnight call money rate to the repo rate signalling that the central bank is likely to remain in a liquidity absorption mode and is comfortable with lower levels of liquidity surpluses. Whether this warrants more durable liquidity absorption still remains uncertain and could be premature. Moreover, liquidity surplus could naturally come down somewhat from current levels by the second half of June on the back of advance tax outflows.
Market Reaction: Bond market reaction was largely muted as the policy outcome was largely on expected lines and the RBI did not revise down FY24 inflation projections significantly. The 10-year bond yield was last trading at 7.01% vs. yesterday’s close of 6.98%. On the FX front, the USD/INR was trading firm at 82.55, at the time of writing.ends GNI SG
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