RBI Governor's Kapil Dev Policy: Playing the economic pitch on merit, say experts

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) did not throw any surprise after its October policy meeting. The MPC unanimously decided to keep the repo rate unchanged at 6.5 per cent on Friday (October 6) and also retained its policy stance as the "withdrawal of accommodation" with five out of six MPC members voting in favour of this.

Growth and inflation projections also did not see any remarkable revision. However, the tone of the governor was hawkish as he emphasised the central bank was targeting inflation near 4 per cent and not between 2-6 per cent.

“I would like to emphatically reiterate that our inflation target is 4 per cent and not 2 to 6 per cent. Our aim is to align inflation to the target on a durable basis while supporting growth," said RBI Governor Shaktikanta Das in his speech.

Moreover, Das also said that the central bank may consider OMO (open market operation) sales to manage liquidity, consistent with the stance of monetary policy. The timing and quantum of such operations will depend on the evolving liquidity conditions, said Das.

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Also Read: RBI Monetary Policy Committee Meeting Live Updates

Let's take a look at what top experts have to say about the RBI MPC announcements.

Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company

The RBI Governor mentioned that the pitch is turning and we will play the ball on merit. Today's policy is like the 'Kapil Dev Policy'. It will manage liquidity, inflation, growth, rupee and financial sector stability in an appropriate equilibrium like legendary all-rounder Kapil Dev managed bowling, batting, fielding and captainship.

The RBI has worked hard to create a balance between growth and inflation setting an example for the rest of the world. This policy continues to take that hard work forward.

Lakshmi Iyer, CEO -Investment & Strategy, Kotak Alternate Asset Managers

Phata poster..nikala status quo.

RBI MPC maintains key benchmark rates, GDP growth and inflation forecasts. OMO sales if any could be a dampener..ready to act remains the key narrative. Expect Indian bonds to trade range bound 7.10-7.30 per cent. Indian equities to focus on earnings.

Madhavi Arora, lead economist at Emkay Global Financial Services

The RBI reiterated caution and the current policy narrative is still more hinged on inflation uncertainty and liquidity management than on the fluid and uncertain global narrative as markets reprice ‘higher-for-longer’.

As global financial conditions transmit with a lag, there could be further volatility ahead. Even as domestic inflation is likely to meet policy targets by the end of FY24, elevated developed market rates and record-low interest differentials pose a headwind for the RBI.

Amid the changing external dynamics, the policy prerogative would ensure financial stability, which may possibly even precede inflation management in the coming months.

ALSO READ: 5 key takeways from RBI Monetary Policy Outcome

Sandeep Bagla, CEO, Trust Mutual Fund

Policy unchanged, guidance hawkish. The governor has taken cognisance of rising US yields, higher oil prices and the need to maintain a tight monetary policy.

Liquidity will remain tight and RBI may resort to OMO (open market operation) sales of its G-Secs (government securities) inventory to suck out excess cash.

RBI also reiterated that the inflation target is 4 per cent implying that Indian rates will remain higher, and may go higher for longer. On balance, there is nothing for interest rate optimists in this policy from RBI.

Dharmakirti Joshi, Chief Economist, CRISIL

Steady interest rates with no change in stance were widely expected and par for the course. Despite the second quarter bulge in inflation, the RBI kept its inflation forecast for the current fiscal unchanged at 5.4 per cent.

Further, the incomplete transmission of past 250 basis-points rate hikes to bank lending and deposit rates reinforced MPC’s imperative to continue its stance of withdrawal of accommodation.

Food inflation remains a key monitorable not only because it is in double digits, but also because sub-normal monsoon and muted sowing can impact kharif output and prices. Additionally, low reservoir levels do not augur well for the rabi crops.

Crude oil has seen a lot of volatility of late and there is a reason to be cautious on that front — more due to geopolitical factors than demand, which is slowing and unlikely to drive crude prices up.

The tightening of US bond yields, capital outflows and strengthening dollar also tilt the balance in favour of the ‘withdrawal of accommodation’ stance. We expect rates to remain at these levels and foresee a rate cut only in the first quarter of next fiscal.

Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers

The monetary policy statements in October 2023, as expected, maintained the status quo on all points. Contrary to common belief, the RBI did not lower its growth forecasts.

According to the inflation projection, the RBI anticipates persistent headline inflation even in FY25. According to the RBI's inflation forecast, the real policy rate would be in the 100 to 150 basis point range in FY25. This is consistent with the central bank's preference.

As a result, a rate cut in the next 12 months is exceedingly unlikely. On the plus side, the governor expressed strong confidence that India will maintain strong growth and that inflation will continue to fall, albeit slowly.

These forecasts are encouraging for both the equity and debt markets in the medium term. However, the strong possibility of the RBI remaining on hold for an extended period of time, as well as the continuance of liquidity tightening, is bad for interest-sensitive industries.

Churchil Bhatt, Executive Vice President and Debt Fund Manager at Kotak Mahindra Life Insurance Company

The MPC of the RBI decided unanimously to keep the policy repo rate unchanged at 6.50 per cent, the third time on the trot. The committee took comfort from falling core CPI inflation and decided to persist with the existing tightness of monetary policy to guide headline inflation to its 4 per cent target.

While the committee retained its FY24 CPI inflation projection at 5.4 per cent, it continues to remain vigilant about the volatile food and energy prices.

On the liquidity front, the Governor hinted at the possibility of using OMO sale operation, if required. Hence, while the policy outcome was largely in line with expectations, the possibility of OMO sale operations by the RBI will keep bond bulls in check till further clarity emerges. We expect the 10-year benchmark government bond to trade in the 7.15-7.35 per cent band in the near term.

Anitha Rangan, Economist, Equirus

Three statements from the policy give us a very hawkish outlook (1) comment that tight global monetary stance could persist higher than expected, (2) food inflation pressures may not see sustained easing, (3) reserves position continuing to decline with the Sept-23 overall having seen near $12 billion of decline to contain rupee volatility suggest that RBI is on a vigilant watch mode.

While batting defensively on a turning pitch, RBI remains very careful. As long as currency is maintained long pause is the call. However, on a turning pitch, a surprise shot can emerge at any time.

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