Comments on RBI Policy by HDFC Securities, Ambit AMC and HDFC Bank

Comments on RBI Policy by HDFC Securities, Ambit AMC and HDFC Bank

The RBI Monetary Policy Committee kept the policy rates unchanged. The rates have gone up in the recent times worldwide and Indian Reserve Bank has been closely monitoring the situation. Indian economy is showing strength and condition in India is much better compared to rest of the world in terms of inflation.

Dhiraj Relli, MD & CEO, HDFC Securities views on the Monetary Policy announced by the RBI earlier today....

During its meeting on June 8, the RBI Monetary Policy Committee (MPC) made the expected decision to keep the repo rates unchanged. The MPC members found themselves in a favorable position, considering the higher-than-anticipated GDP figures and the easing trends in both headline and core inflation.

The MPC maintained its "withdrawal of accommodation" stance, with a majority vote of 5:1. This stance was influenced by the surplus liquidity in the system, which was further amplified by the withdrawal of Rs 2000 notes. However, if inflation continues to moderate consistently in the future, there may be a shift from the "withdrawal of accommodation" stance to a "neutral" stance.

India's economy has displayed resilience, and the RBI maintained its GDP forecast for FY24 at 6.5%.

Considering the uncertainties surrounding the potential impact of El-Nino conditions on the monsoon season in 2023, the RBI exercised caution and made a modest adjustment of only 10 basis points in its inflation projection for FY24, revising it to 5.1%. The RBI Governor emphasized the importance of working towards the primary inflation target of 4%. Given this context, the expectation of a rate cut within this calendar year seems to have diminished. We anticipate that the first rate cut may occur in February 2024.

Mr. Abheek Barua, Chief Economist, HDFC Bank commented on today’s RBI Monetary Policy....

The central bank has announced its decision to maintain the existing policy, keeping both the policy rate and stance unchanged. In terms of economic growth, the RBI remains optimistic and has revised its forecast for Q1 growth to 8%, while maintaining its annual forecast at 6.5%, which surpasses our estimate of 6-6.2%. Regarding inflation, the central bank acknowledges the temporary reduction in inflationary pressures but remains cautious about future trends.

The central bank has made a slight adjustment to its inflation forecast, lowering it to 5.1%. It appears that the bank is preparing for any potential spikes in food prices caused by weather-related disruptions during the monsoon season. If these risks do not materialize, inflation could turn out to be lower than the RBI's projections, which may lead to a more dovish tone in future communications.

The policy decision announced today has had minimal impact on the bond market, as it aligns with general expectations. Any expectations of a rate cut in 2023 that were emerging in the market are likely to be postponed for the time being.

Manish Jain, Fund Manager, Coffee Can PMS, Ambit Asset Management said the following....

The Reserve Bank of India (RBI) employs a practical strategy to maintain a balance between economic growth and inflation, independent of the global economy. Furthermore, the recent two-month Consumer Price Index (CPI) inflation has remained below the RBI's tolerance threshold, providing reassurance to the RBI to keep the repo rate and stance unchanged. The significant shift in the spread between Wholesale Price Index (WPI) and CPI, which went from a positive 880 basis points in May 2022 to a negative 560 basis points in April 2023, will positively impact the gross margins of sectors catering to consumers.

Business News: