RBI has taken a good call, I think: FM Nirmala Sitharaman on MPC decision to keep benchmark rate unchanged

Nirmala Sitharaman, the Finance Minister, stated on Thursday that the Reserve Bank of India has "taken a good call" with its announcement of its bi-monthly policy.

“Inflation has been kept at six per cent or below: Finance Minister Nirmala Sitharaman on price rise,” said FM.

The central bank said earlier in the day that the latest Monetary Policy Committee meeting resulted in the decision to maintain the repo rate at 6.50 percent. During FY24, the central bank predicted that inflation would fall to 5.2%. The central bank projected inflation at 5.1 per cent, 5.4 per cent, 5.4 per cent, and 5.2 per cent, respectively during Q1FY24, Q2FY24, Q3FY24, and Q4FY24.

In response to worries about inflation, the central bank has raised the rate by 250 basis points since May of last year. Up to February 2023, the central bank raised the benchmark rate six times during MPC meetings. 

Namrata Mittal, Senior Economist, SBI Mutual Fund on the RBI monetary policy said “FY24 growth projection has revised up marginally to 6.5% (vs. 6.4% in previous policy). Headline CPI is estimated to be further moderate to 5.2% in FY24 vs. the initial expectation of 5.3%. Today’s policy was a close call between no action or a final 25bps hike in this rate-hiking cycle on the back of global turbulence last month. Against this backdrop, the RBI chose to stay on hold. While the vigilance on inflation continues, contained commodity cost could keep inflation anchored around 5% defying the need for any further hike in this cycle.” 

Namrata Mittal said “The lag effect of earlier actions and the cumulative monetary and liquidity tightening should enable policy rates to stay on hold incrementally. The FY24 GDP estimates which are in alignment with the Budget numbers probably remain on the higher side that could be re-assessed as we move forward. The policy could provide a breather to the bond market. We are positive on duration from a yearlong perspective. Though, we would watch out for market’s ability to absorb elevated government bond supply in the coming weeks.”

Commenting on the RBI’s decision to keep repo rate unchanged, Soumitra Majumdar, Partner, JSA on RBI Monetary Policy, said “RBI's Monetary Policy Statement reflects cautious optimism. Acknowledging the necessity for continuing the war on inflation, anticipating some softening in inflation, the RBI takes steps to give fillip to growth. The unchanged rates should instil some level of confidence and certainty in pushing credit growth and deployment. Coupled with sustained growth, the RBI has also emphasised strong prudential checks on financial institutions, to ensure financial stability and to insulate India from the financial sector crisis in some of the other major economies. While growth forecast has been tempered down, however, the RBI’s measured stance should improve India as an investment destination. Together with strengthening macro- economic fundamentals, the RBI’s step to completely digitise its approval process - with transparent tracking and timelines is an extremely important positive step for instilling investor confidence. Permitting forex derivatives for residents through the IBU’s should provide the dual advantage of enhancing hedging options to residents, as well as further develop the IBU’s. Without exception, this statement also emphasises on fintech innovations. The pre- sanctioned credit limits through UPI could also push retail demand – adding the much- needed fuel to the Indian growth story.”