The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, has kept the repo rate steady at 6.5 percent from February 2023 for the eleventh time in a row. Many economists mention it as a positive response and explain how it affects the market of the financial or banking sector. Does it meet their expectations? Find out here
Here is a list of market experts’ comments and views on an unchanged repo rate of 6.5 and a 50 bps reduction in the Cash Reserve Ratio (CRR):
Dr. Manoranjan Sharma of Infomerics estimates
“The MPC has taken the right call and is fully in line with our expectations. The RBI has kept the repo rate unchanged at 6.5% from February 2023, and given the macroeconomic situation, this is not the right time to adjust this rate,” Sharma said. said.
“There has been a strong case for lowering the CRR to reduce liquidity without increasing inflation. This will also provide banks with additional resources to support credit growth and strengthen financial stability. Slower growth could result in a reduction in the RBI’s growth projections for FY25- the RBI lowered its growth forecast to 6.6 percent from 7.2 percent earlier.
According to Manoranjan Sharma, the cash reserve ratio (CRR) for all banks will be reduced to 4 percent of total demand and time liabilities (NDTL) in two increments of 25 basis points each, from 14 and 28 December. “This move will infuse Rs 1.15 lakh crore of liquidity into the banking system, thus, which will provide a fillip to the credit process and give a boost to GDP growth. With the RBI keeping the Repo rate steady at 6.5 percent, all lending rates external borrowings (EBLR) linked to Repo rate will not rise (EMIs) will not rise, said Sharma.
Dr. VK Vijayakumar, Chief Investment Officer, Geojit Financial Services
“Monetary policy has delivered exactly what the economy and markets need in the current situation. The RBI Governor’s emphasis on price stability is appropriate given the high rate of inflation,” said an economist at Geojit Financial.
“The decision to cut CRR by 50bp helps inject Rs 1.16 trillion of liquidity into the system will ease liquidity constraints and more importantly reduce the cost of funds for banks. From a market perspective, this is a very good policy response. Bank stocks will remain strong,” said Vijayakumar. .
Anitha Rangan, Economist at Equirus
According to Anitha Rangan, Economist at Equirus, this move provides adequate liquidity and facilitates short-term borrowing while maintaining long-term stability.
Rangan noted that external factors prevail, and the RBI is unlikely to adjust policy rates until there is clarity on global economic conditions. Reversal of 50 bp CRR hike from April 2022 is a positive step, but policy hike from May 2022 will take a long time to reverse. The economist advises not to expect a rate cut of more than 50 bp in 2025 and emphasizes the need for caution and patience amid the uncertainty of the external sector.
Doing these two RBI rates has provided adequate liquidity and facilitated short-term borrowing while keeping the long-term stable. In line with the growth outlook of 7.2 percent in FY25 it has been reduced to 6.6 percent, with the latest decline in growth. The inflation outlook has however been revised up to 4.8 percent in FY25 from 4.5 percent by 4 percent in Q2 of FY26.