RBI Monetary Policy Committee (MPC) Statement: Impact On Markets

Central Bank, the Reserve Bank Of India has concluded its three-day Monetary Policy Committee (MPC) meeting today. As a decision, the RBI has kept the repo rate unchanged at 4%, and the reverse repo rate at 3.35%. It is an accommodative stance, taken by the central bank to support the economy.

Comments from Emkay Global Financial Services

Madhavi Arora, Lead Economist, Emkay Global Financial Services commented, "The MPC expectedly kept the key rates unchanged unanimously and reiterated its accommodative stance both on rates and liquidity. However, Prof Jayanth Varma's dissent on continuation of accommodative stance for foreseeable future continues to keep MPC in split state. The possible hike in fixed reverse repo was a close call and it seems the RBI gauged that markets need to be assuaged over material tightening of financial conditions ahead as global dynamics change and decided to stay put. The gradualist approach toward liquidity and rate normalization may be challenged by various global and domestic push-and-pull factors. Nonetheless, a huge bond supply in FY23 (even with upside surprise on tax revenues) will require the RBI's invisible hand in a more visible fashion, implying return of a pre-committed GSAPs going ahead. An uncomfortable RBI may neutralize that with CRR hikes, albeit it will face some communication challenges."

Arora added, "We note the macro adjustment owing to changing global and domestic dynamics has so far been borne by the rates market while the FX market has been resilient. Amid ultra-elevated term premia, India's current real rates look reasonable vs. EMs, given the present crosscurrents. This could give some leeway to the RBI to conduct shallow normalization."

Comments from Anand Rathi Shares & Stock Brokers

Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers said, "We think that the RBI had at least the space to do a symbolic 15 bps reverse repo hike so as to signal rate normalization, commitment to be at the top of the inflationary situation and also keep the Indian monetary policy in alignment with the global trend. We expect the rate hike to start in the next MPC meeting. The stance of monetary policy, however, is likely to continue as accommodative."