RBI Monetary Policy: Check What Experts Have To Say About Policy Announcement

The RBI lowered its GDP growth forecast for FY23 to 6.8 per cent from 7 per cent earlier

The RBI has been hiking rates because of the high inflation, where the headline number has been above the upper end of the tolerance band for the tenth month running in October.

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The Reserve Bank of India’s (RBI's) Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, on Wednesday announced a 35 basis point hike in the repo rate to 6.25 per cent.

The RBI has been hiking rates because of the high inflation, where the headline number has been above the upper end of the tolerance band for the tenth month running in October. Das said inflation is cooling across the world on softening of the commodity and the oil prices, but stressed that we cannot be "complacent" despite the positive news on inflation.

The central bank has tweeted some key highlights of governor Das' speech.

Opening remarks of #RBI #Governor @DasShaktikanta in the post monetary policy press conference, December 07, 2022. #RBItoday #RBIPolicy #Monetarypolicy pic.twitter.com/v0v9NfGO5d

— ReserveBankOfIndia (@RBI) December 7, 2022

The RBI lowered its GDP growth forecast for FY23 to 6.8 per cent from 7 per cent earlier.

Click here to read the full statement of RBI Governor Shaktikanta Das.

Here is what experts have to say about the policy announcement.

Utkarsh Sinha, managing director, Bexley Advisors, a boutique investment bank firm, said that policy moves by the central bank have a lagging effect on the economy; globally, rate hikes have begun arresting inflation and creating downward pressures on both production and consumption. In India too, this is the case: inflation is close to the 6% tolerance range, while Q2 GDP growth has decreased to 6.3 per cent.

The worry with continued rate hikes is that the momentum of these declines crosses a tipping point in the opposite direction, risking a contraction and further reduction in output, particularly manufacturing output.

However, RBI's decision - like that of the Fed in the US - is not a straightforward or easy one to take. It is equally important of the central bank to signal to the economy that it is running the course of the antibiotic it has prescribed to the economy; stopping mid-way can lead to a loss in confidence that in turn could have many, unanticipated effects - that could range anywhere from a severe contraction to runaway inflation.

In this regard, the RBI's decision to continue with modest hikes is perhaps wise, as long as there is effective communication to the economy about the direction it is meant to be headed and a foreseeable end-point is identified.

Anindya Banerjee, vice-president, currency derivatives & interest rate, Kotak Securities, said RBI's monetary policy was on expected lines with 35-bps hike and promise to do more. The MPC’s comments on rupee was also in line with their previous comments. They target volatility and Rupee remains stable on a REER basis. In a way it means, RBI would be watching closely after volatility has increased in USDINR, over the past two trading sessions. But without active intervention or announcement of sell-buy swap, we could see USDINR move higher. We expect a range of 82.00 and 83.00.