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Rate hike move on expected lines: Experts

On completion of its three-day branstorming meeting of MPC, Reserve Bank of India (RBI) on Wednesday raised repo rate by 25 basis points.

Reserve Bank of India

Reserve Bank of India

Mumbai: On completion of its three-day branstorming meeting of MPC, Reserve Bank of India (RBI) on Wednesday raised repo rate by 25 basis points. It was in the wake of the fact that MPC voted with 4:2 majority to raise repo rate. Post hike, the revised repo rate now stands at 6.5 per cent. Experts from different sectors have rated RBI's rate hike decision as a balanced move.

Talking to Bizz Buzz, Madhavi Arora, Lead Economist, Emkay Global Financial Services, says, "The RBI MPC expectedly increased the policy rate by 25 bps with a balanced tone, albeit non-committal and data dependent, partly as inflation is still around the six per cent upper tolerance mark, even though it is poised to ease."

With this hike of 25 bps, the one-year ahead estimated real repo rate will likely get fairly positive (implying a pause, although not necessarily an end to the cycle), she said.

"We maintain that the RBI would not turn too restrictive, but reckon the situation globally is fluid, and macro assessments might require appropriate adjustments ahead from the policy perspective," she explained.

Aditi Nayar, Chief Economist, ICRA, said: "With the stance continuing to focus on withdrawal of accommodation, the window remains open for further rate hikes if inflation exceeds the MPC's projections. We expect the MPC to remain vigilant and data dependent in FY2024."

The policy tone was hawkish as the RBI recognised that they are still away from achieving their objective of durable disinflation. In terms of the inflation risks, the RBI highlighted the elevated nature of core inflation and continuing global risks that could push up domestic inflation going forward.

Abheek Barua, Chief Economist and Executive Vice President, HDFC Bank, said: "On growth, the RBI pegged GDP growth at 6.4 per cent in FY24, higher than consensus expectations – sounding optimistic on the growth momentum. Going forward, the central bank is likely to become more data dependent, and this does not rule out another rate hike in the upcoming policy."

On liquidity, the RBI recognised that there might be some reduction in liquidity surplus as the facilities provided during the pandemic end, while providing reassurance that they are likely to balance these out through various instruments available at their disposable. Murthy Nagarajan, Head-Fixed Income, Tata Mutual Fund, said, "RBI has assumed crude oil prices at 95 dollars per barrel due to relaxation of covid restrictions and IMF projecting world growth to be at 2.9 per cent as advance economies are expected to have mild recession only."

Kumud Das
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