RBI MPC Highlights: Stock Market Closes In Red After RBI Keeps Repo Rate Unchanged At 6.5%
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Saket Dalmia, President of India Sotheby's International Realty, said, "The RBI's decision to maintain the policy rate aligns with expectations, given the current inflation and global economic scenario. While the near-term outlook for global growth appears positive, the medium-term outlook faces challenges due to demographic shifts, climate change, geopolitical tensions, and fragmentations. Despite this, domestic economic activity remains resilient."
Shrinivas Rao, FRICS, CEO, Vestian, said, “RBI maintained status quo for the ninth consecutive time and kept the repo rate at 6.5 per cent. Sticky inflation, elevated food prices, and global macroeconomic uncertainty likely influenced this decision. A steady monetary policy for the past one and half years has ensured stability in the real estate sector, boosting demand for all asset classes."
Anil Gupta, Senior Vice President Co Group Head - Financial Sector Ratings, ICRA, said, "Deposit rates may continue to remain high, given the regulatory nudge to increase focus on the retail deposits while pursuing credit growth. Recent regulatory action on tightening liquidity coverage ratio regulations and concerns on credit growth outpacing deposit growth points towards likely slowdown in credit growth in near term. ICRA expects the credit growth to slow down to 11.6-12.5 per cent in FY2025 from 16.30 per cent in FY2024."
Indian benchmark indices ended lower in a highly volatile session on Thursday, with the Nifty closing below 24,100. By the end of the day, the Sensex had dropped 581.79 points, or 0.73 per cent, to 78,886.22, while the Nifty fell 180.50 points, or 0.74 per cent, to 24,117.00. Of the 3,465 shares traded, 1,702 advanced, 1,679 declined, and 84 remained unchanged.
Parijat Agrawal, Head – Fixed Income at Union Mutual Fund, said, “As expected, the MPC kept the rates and stance unchanged. The MPC kept the stance unchanged due to ample systemic liquidity. The focus remains on bringing headline inflation on a durable basis to 4 per cent. Although core inflation is in disinflationary trend, volatile food inflation is a cause of worry. Growth remains robust as visible in high frequency indicators. Global economic slowdown and financial market volatility is something which the MPC may have to address going forward. The evolving growth inflation dynamics point towards rate cut beginning from December policy.“
Dr Poonam Tandon, Chief Investment Officer at IndiaFirst Life Insurance, said that the RBI is confident in growth and inflation expectations have been kept unchanged. He also emphasised that the focus will be on CPI inflation and not the core inflation(which is softening). The Governor has been confident in the strength of India’s macroeconomic fundamentals, which remain robust.
"The liquidity has increased in the system and the bond market has already discounted a 25bps rate. We do not expect any rate cuts in the near future. Overall, a very balanced policy with status quo continues," she said.
“The message in the RBI monetary policy is to keep price stability at the top of its priority list with an objective of a sustained economic growth. We see convergence in these two objectives even as there is an expectation of change in stance towards 'accommodation' in the next one or two policy reviews,'' ASSOCHAM Secretary General Deepak Sood said.
Dr Sachin Chopda, MD of Pushpam Group, said, "The Reserve Bank of India's decision to keep the repo rate at 6.5 per cent for the ninth time shows its dedication to economic stability. This consistent policy provides certainty to the real estate sector. Stable interest rates mean predictable EMI payments for homebuyers, making property ownership more accessible. Developers can plan their projects confidently, leading to steady investments and job creation. While inflation remains a concern, the RBI's cautious approach balances growth and price stability, benefiting the real estate market."
"The continued pause in the policy rate and sticking with the stance of withdrawal of accommodation was expected given the RBI Governor’s earlier statements," said Ranen Banerjee, Partner and Leader Economic Advisory, PwC India.
He added: "There is no pressing need for any action on the policy rate as the yields on 10 year paper have already softened by almost 20bps owing to the index linked flows. There is still volatility in food prices and a risk of food inflation that will keep the CPI elevated above 4 per cent in FY25. So, we should expect a continued pause till Q4 unless we have a lowering of weightage of food in the index being adopted in the interim."
Murthy Nagarajan, Head-Fixed Income, Tata Asset Management, said, "The RBI Governor indicated a shift in focus from Core Inflation to headline inflation from, and forecasted CPI inflation to come down at 4.5 per cent for FY25. The pace of reduction is expected to be uneven due to repeated food shocks."
"The Governor stated food- which constitutes around 46 per cent of the CPI basket, contributed 75 per cent of the rise in CPI inflation for June. Of which, vegetables Inflation contributed 35 per cent of the rise in CPI Inflation. All these statements are on expected lines and market will focus on CPI inflation for July which is expected at 3.7 per cent. The market is expected to trade on a bullish note with the Indian ten-year Government Securities trading in the band of 6.80 per cent to 6.90 per cent in the coming months," Nagarajan added.
Not all household savings are being redirected into futures and options (F&O) trading. This issue has been addressed by the ‘Early Warning Group’ of regulators. SEBI is anticipated to implement suitable measures to address concerns about the increasing volumes in F&O trading, according to RBI Governor Shaktikanta Das.
RBI Deputy Governor said that they have noted that the bulk of FAR interest is concentrated in the 5 to 10 year segment, which represents 90 per cent of total investments. In contrast, the 30-year segment attracts only 2 per cent of the overall investment stock.”
Governor Das asserts that while domestic economic growth remains resilient, substantial progress is required to align inflation with the 4 per cent target. He points out that although inflation is moderating, the pace of disinflation is still uneven and slow.
RBI Governor Shaktikanta Das said in a press conference after the MPC announcement on Thursday that US economic growth is performing quite well, and it’s premature to draw conclusions from just one month’s unemployment data. Discussing a potential US recession at this point is too early. We will continue to monitor both domestic and international data closely and address any arising situations. Additionally, Das noted that India has strengthened its resilience against external shocks.
Aman Sarin, Director & Chief Executive Officer, Anant Raj welcomes the Reserve Bank of India's decision to keep the policy rate unchanged to maintain economic growth and keep inflation under control. "This decision fosters a stable economic environment, which is crucial for sustained development. We believe that stable interest rates are particularly beneficial for the real estate sector. When interest rates remain steady, home buyers can plan their purchases without the uncertainty of potential rate hikes. The cost of borrowings, too, remains stable, thus, the cost of construction, he said.
Adhil Shetty, CEO of BankBazaar.com, said that the RBI has been actively working to reduce the menace of fake loan apps preying on people. "I heartily welcome RBI's step to set up a repository of digital lending apps. It is a move that will help consumers identify fake apps and encourage them to use only legitimate digital lending apps," he said.
"Only regulated entities will be permitted to report and update info about the digital lending apps whose services they are availing. Digital lending apps that are unregulated or not partners of regulated entities will not be a part of this repository. This makes the repository even more reliable and introduces multiple checks and balances to ensure that only legitimate digital lending apps end up as part of the repository," he added.
Anuj Puri, Chairman of ANAROCK Group, said that RBI's decision to keep repo rates unchanged at 6.5 per cent for the ninth consecutive time aligns well with the announcement on indexation benefits.
"It sets a positive tone for the housing industry. Maintaining interest rates offers consistency in borrowing costs, which will prompt more aspiring homebuyers to consider taking the plunge - and thus drive demand in the housing market. With interest rates staying steady, EMIs will remain manageable for current and potential homeowners, potentially leading to increased home sales - particularly in the price-sensitive affordable segment," Puri added.
The Indian stock market fell after the RBI MPC announcements, as the Reserve Bank of India decided to keep the repo rate unchanged at 6.5 per cent for the ninth consecutive meeting. At 11.00 am on Thursday, the NSE Nifty was down 140.75 points to reach 24,156.75. The BSE Sensex dropped 458 points to reach 79,009.51.
The RBI governor announced during the RBI MPC meeting that the central bank has increased the transaction limit for UPI-based tax payments from Rs 1 lakh to Rs 5 lakh per transaction, allowing for higher-value payments through the Unified Payments Interface (UPI) system.
"Inflation is moderating, but the progress is slow and uneven. India’s inflation and growth trajectory is moving in a balanced manner, but it is crucial to remain vigilant to ensure that inflation aligns with the target," concluded RBI Governor Shaktikanta Das.
RBI Governor Shaktikanta Das said the overall financial sector remains healthy and stable. Banks and NBFCs will be instructed to implement corrective measures. An unprecedented global outage has affected industries worldwide, underscoring the need for banks and financial institutions to develop frameworks to ensure operational resilience.
The Reserve Bank of India (RBI) conducted two-way Liquidity Adjustment Facility (LAF) operations in June and July to align overnight rates with the repo rate. During this period, net Foreign Direct Investment (FDI) inflows substantially increased, doubling in the April to June 2024 quarter compared to the previous year. Additionally, India’s foreign exchange reserves reached a record high of $675 billion as of August 2, 2024.
Governor Das notes that the MPC is likely to overlook the temporary spikes in food inflation but cannot ignore persistent high food prices due to their potential spillover effects. He highlights that the public largely views inflation through the impact of food prices.
The RBI has revised its CPI inflation forecast for Q2FY25 to 4.4 per cent, up from the earlier estimate of 3.8 per cent. The forecast for Q3FY25 has been adjusted to 4.7 per cent from 4.6 per cent, while the Q4FY25 forecast has been reduced to 4.3 per cent from 4.5 per cent. For Q1FY26, CPI inflation is projected to be 4.4 per cent.
Governor Shaktikanta Das said that the RBI must not become complacent despite a notable decrease in core inflation, noting that food inflation pressure remains a concern.
RBI projects GDP growth for FY26 at 7.2 per cent and retains real GDP growth projection for FY25 at 7.2 per cent. The quarterly projections are
Q1FY25 GDP growth is estimated at 7.1 per cent
Q2FY25: GDP growth is estimated at 7.2 per cent
Q3FY25 GDP growth is estimated at 7.3 per cent
Q4FY25 GDP growth is estimated at 7.2 per cent
RBI Governor Shaktikanta Das has announced that the Marginal Standing Facility (MSF) and Standard Deposit Facility (SDF) rates will remain at 6.75 per cent and 6.25 per cent, respectively. He noted a strong alignment between market expectations and the MPC's policy stance. Das also pointed out that although headline inflation is anticipated to ease due to a favourable base effect, this trend might reverse in the third quarter.
RBI Governor Shaktikanta Das announced the outcomes of the MPC meeting, stating that the committee projects real GDP growth for the fiscal year 2024-25 at 7.2 per cent.
RBI Governor Shaktikanta Das said during MPC announcements that domestic growth remains robust and is supported by steady urban consumption. The MPC concluded that it is essential for monetary policy to stay consistent while closely monitoring inflation. The committee stressed the importance of focusing on inflation to ensure continued economic growth.
The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) voted 4-2 to keep policy rates unchanged at 6.5 per cent and opted to maintain its 'Withdrawal of Accommodation' stance.
Central Bank Keeps Repo Rate Unchanged At 6.5 per cent, said RBI Governor Shaktikanta Das. This marks the eighth consecutive review at this level since February 2023. This extended pause is the second-longest in the past 25 years
Radhika Rao, Executive Director and Senior Economist at DBS Bank stated that given the strong domestic growth-inflation dynamics, the RBI MPC is expected to maintain its cautious approach and uphold its 'withdrawal of accommodation' stance. "Policymakers will monitor developments in the US Fed policy as markets price in a near-certain rate cut in September and US yields having corrected sharply amidst signs of cooling economic activity," Rao added.
Manoj Dharmani, CEO of DUDigital, suggests that the RBI should keep the repo rate at 6.5 per cent to effectively balance economic growth with inflation control. "A stable rate offers predictability, encouraging investment and consumer spending while keeping inflation within the target range. This approach will not only support the financial sector's stability but will also promote a conducive environment for businesses to thrive," he said.
Suman Bannerjee, CIO at Hedonova, indicated that the central bank is likely to keep the benchmark rate unchanged given ongoing inflationary pressures, especially from rising food prices. "This cautious approach is designed to balance economic growth with price stability. By holding the rate steady, the RBI aims to mitigate inflation without stifling economic momentum," Bannerjee said.
Shreya Sodhani, Regional Economist at Barclays, noted that the MPC's commentary on the global economic outlook and domestic inflation trends will be closely watched later this week.
"We expect the MPC to remain on hold in the upcoming meeting as it considers the progress of the monsoon, international commodity prices, the uptick in domestic input prices, and the repricing in US Fed expectations over the last week. We maintain our forecast of an RBI rate cut in December but note the risk of a delay if inflation does not progress in line with the RBI's expectations," Sodhani said.
Background
Business News Highlights: Hello and welcome to ABP Live's Business LIVE blog. Please follow this space for all the breaking news and latest updates from the stock market, economy, and the corporate world.
The Reserve Bank Of India (RBI) is all set to announce the outcome of the Monetary Policy Committee (MPC) meeting on Thursday. The regulator's MPC will convene to determine the benchmark interest rate and outline the future course of the Indian economy. The bi-monthly meeting, chaired by RBI Governor Shaktikanta Das, will take place from August 6-8, 2024. The central bank last raised the repo rate in February 2023 and has maintained the current key rates since then.
The committee members include Ashima Goyal, Jayanth R. Varma, Rajiv Ranjan, Shashanka Bhide, and Michael Debabrata Patra.
The committee will announce the final outcome on Thursday at approximately 10 AM. People can access press releases, meeting minutes, and other documents related to the MPC on the Reserve Bank of India's official website. Major updates about the meeting will also be available on the RBI's social media handles on X and LinkedIn.
"RBI is likely to pause as food price movements currently is imparting a positive bias to RBI 4.5 per cent projection...likely prospects of an excess rainfall in August and September could also have a debilitating impact on food prices," said a SBI research report It also expects the Reserve Bank to continue with its monetary stance of withdrawal of accommodation.
Goldman Sachs reports that the MPC is expected to maintain the policy rate at 6.5% during its meeting on August 8.
"We expect the RBI MPC to keep the policy repo rate unchanged at the Aug 8 meeting at 6.50 per cent, with a 4:2 vote in favour, retain the monetary policy stance of 'withdrawal of accommodation', sound relatively optimistic on growth, and continue to reiterate the commitment to the 4 per cent headline inflation target," it said.
The central bank conducts approximately six bi-monthly meetings each fiscal year to decide on interest rates, inflation outlook, money supply, and other economic indicators. Following the August MPC meeting, the following sessions are scheduled for October 7-9, 2024, December 4-6, 2024, and February 5-7, 2025.
In the previous MPC meeting, held June 5-7, the committee maintained the benchmark interest rate at 6.5 per cent, marking the eighth consecutive meeting in which the key rates were kept unchanged.
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