RBI Monetary Policy Live: RBI to announce monetary policy today, likely to hold repo rate at 6.5%

This RBI monetary policy outcome may fuel Indian stock market to start fresh leg of rally in near term as Nifty has already breached its 18,650 hurled on Wednesday. Analysts advised long term positional investors to start accumulating IT stocks for long term as quality IT stocks are available at highly discounted price. However, they predicted that fresh rally in Indian IT stocks would start from the large-cap segment followed by mid-cap and small-cap IT stocks. Read here

The Reserve Bank of India (RBI) is again expected to keep the repo rate unchanged and will go for a “prolonged pause” in its bi-monthly monetary policy. The central bank is likely to downgrade inflation projections for FY24 and a possibility of a GDP growth upgrade, said SBI Research in a report. Read here

Since the last policy, RBI will be evaluating trends in inflation, monsoon and sowing, changes in oil prices, movement of high frequency indicators and global developments.

Inflation: Most recent CPI print shows that retail inflation has fallen to 18-month low of 4.7% in April 2023, below RBI’s upper tolerance limit, as compared to 5.7% in March 2023.

GDP Growth: India’s GDP growth for FY23 is estimated at 7%, as per advanced estimates of National Income for 2022-23 revealed by the National Statistical Office (NSO). RBI has estimated GDP growth of 6.5% for fiscal 2023-2024.

Oil prices: The crude oil prices have fallen since April policy. International crude oil price was at $85.1 per barrel in April, and since then it has fallen to around $77 per barrel.

High-frequency indicators: Manufacturing activity picked up pace in May as Manufacturing PMI was at 58.7 versus 57.2 in April. Service sector growth showed some moderation as PMI was off its peak of 62 in April to 61.2 in May.

GST Collection: GST Collection was at ₹1.6 lakh crore for May as compared with an all-time high of ₹1.9 lakh crore in April.

System liquidity: On an average, system liquidity surplus was at ₹0.72 lakh crore in May as against April’s average system liquidity surplus of ₹1.5 lakh crore.

• We expect the RBI to pause in June policy
• The stance could continue to be withdrawal of accommodation, as liquidity has turned into significant surplus mode
• Inflation estimates for FY24 could be downgraded
• Possibility of growth upgrade for FY24 looks imminent

The evolving growth-inflation mix indicates a continued pause from the RBI in June. The RBI had paused in April, clearly indicating that the markets should not construe the same as a “pivot”. The upside surprise seen in the latest released GDP numbers Q4FY23 show that the economy is resilient even as private consumption expenditure remains on the slow track. YoY headline CPI inflation has come down and we anticipate the softening bias to continue. However, the more significant reason for the reduction in the CPI is the high base of last year. Price pressures continue to exist, as is also evident in a 8.1% mom jump in the vegetable prices for May. On the other hand, there is still a hawkish tilt to the US Fed policy and AE policy interest rates are expected to continue to rise, given that respective inflation levels are still quite high compared to the targets.

While we expect the RBI to stay on a pause in June, the next move is surely a cut. However, we might have to wait till around the February 2024 MPC meeting for this cut.

When the Reserve Bank of India (RBI) raised interest rates last year, its aim was to curb inflation. The key link in the transmission from rate hikes to lower prices is inflation expectations: households and corporates have to be convinced that inflation will be brought under control, so that they are motivated to consume and invest. To this end, the RBI conducts a bi-monthly Inflation Expectations Survey of Households (IESH), in which it asks a sample of households about their views on current and future price movements. Unfortunately, the results have not served this purpose very well. Continue reading here

If, as is widely expected, the RBI keeps the repo rate unchanged tomorrow, it will benefit the Indian real estate sector beyond just lower home loan borrowing costs. It also implies a boost to construction and infrastructure – a steady repo rate maintains a favourable lending environment for developers, who can access loans for construction at stable interest rates, thus encouraging them to undertake new projects. Stability in the repo rate also signals consistency and predictability in monetary policy, which will in turn boost investor confidence. Moreover, it will help maintain liquidity in the banking system, making more funds available to lend to individuals and businesses, says Anuj Puri, Chairman, ANAROCK Group

On how stock market will react if there is any interest rate cut hint from the RBI in upcoming MPC meeting, Chandan Taparia, Derivative & Technical Analyst at Motilal Oswal said, “FIIs are awaiting final outcome of the RBI MPC meeting as US dollar has surged to record two month high after the uncertainty on US Fed rate hike after the better-than-expected Non-Farm Payrolls (NFP) report in the US. Any hint of interest rate cut in future may lead to bulk buying by both DIIs and FIIs and we may witness a fresh boomerang on Dalal Street.” However, Motilal Oswal expert maintained that market has already discounted the outcome of status quo on interest rate from the upcoming RBI MPC meeting. Read here

Asset prices moving in a trend will continue to move in the direction of the trend unless acted upon by a disagreeable surprise. Going into the 23 April Monetary Policy Committee (MPC) meeting, the bond market had doubts about whether the trend of policy rate hikes was over just yet. After all, despite six consecutive policy rate hikes—amounting to 250 bps of policy tightening, headline consumer price inflation (CPI) was still hovering above 6%. While consensus was that yields had more or less peaked, markets had pencilled in a final 25 bps rate hike in what was to be the MPC’s final strike. So, when the MPC opted for a status quo policy in the April meeting, it surprised the market, albeit a pleasant one. Read more

Ahead of the RBI bi-monthly monetary policy review, Indian stock indices, including the Nifty, have been trading steady. Most analysts anticipate that the RBI will maintain the repo rate at 6.5% due to declining inflation, currently at an 18-month low. This comes after a period of consistent tightening of monetary policy since mid-2022, which has significantly lowered inflation. Despite a pause in April, the RBI has raised the repo rate cumulatively by 250 basis points since May 2022 to combat inflation and that puts pressure on economic growth. Given the absence of a clear market trend, investors and traders are advised to closely monitor market developments and adapt their strategies as necessary.

Nifty is already pricing in an interest rate pause and bullish comments on the economy from the governor. The stump in inflation and slowdown in overall food inflation will further add glimmer to the meeting. We expect markets to act positively and being supportive for Autos and IT’s in the Nifty index. The financials, which has 37% weightage in the Nifty, have already seen a sharp rally in anticipation of bright economic prospects, and we do not expect a significant move here.

Nuvama Institutional Equities noted that the setting is April’s CPI inflation of 5%, which is expected to slow down even further, in contrast to the real GDP growth that was a welcome surprise in Q4FY23. The combination of indications allows RBI room to keep an eye on the incoming data before changing directions. It might now change from ‘withdrawal of accommodation’ to ‘neutral’ if inflation continues to moderate, believes the brokerage. Read here

The chances of a rate cut are low in this policy, as the majority of experts believe RBI will keep the repo rate unchanged and focus on the impact of an intense rate hike cycle across industries. Also, the latest economic-inflation mix hints at a second status quo. Read here

The review by the six-member MPC led by Das will likely indicate the course RBI will adopt in the remainder of the financial year as it seeks to strike a fine balance between maintaining growth and keeping inflation within the tolerance zone of 4-6 per cent amid global headwinds. Read here

Nifty has broadly performed on a bullish note ahead of RBI’s monetary policy scheduled on Thursday. The benchmark is currently near the 18,730 level. But in the past five trading sessions, this 50-scrip index has gained by more than 1%. With RBI’s policy taking the limelight, Nifty and broadly the market sentiment is looking positive on June 8. Expectations are that Nifty may soon cross its lifetime high of 18,887.60, whether RBI’s policy will do the trick will be keenly watched. Read here

The Nifty continues to demonstrate its strong bullish momentum, while the Banknifty is exhibiting some underperformance in anticipation of the RBI policy. Although the market is currently pricing in an unchanged policy, there is speculation that the governor’s comments might adopt a hawkish tone due to robust economic growth coupled with persistent inflation concerns. Additionally, there are emerging concerns regarding potential delays in the monsoon season, which could be addressed in the governor’s commentary and potentially lead to some profit booking in the market.

However, despite these potential headwinds, the overall market structure remains bullish, and any corrections that may occur are viewed as buying opportunities. If the Nifty manages to surpass the 18,700 level, it is likely to pave the way for a further move toward its all-time high of 18,888. On the downside, key support levels to watch are 18,450 and 18,180.

In its upcoming MPC meeting, we expect the RBI to keep the repo rate unchanged at 6.5%, continuing with a pause, as inflation, supported by statistical base, has moderated, and will likely remain so. This provides enough support for the RBI to keep its key policy rate unchanged.

In terms of real estate, the implication of the rate hike on home loan demand has been minimal so far. Residential demand has remained upbeat indicating strong consumer preference towards home ownership despite high interest rate and inflation over the last one year. However, with economic growth facing headwinds from global slowdown, and the full impact of the high interest rates yet to be seen, we remain cautious of the impact on the housing market.

In the upcoming credit policy meet of RBI, we expect MPC to remain on hold and keep the rates unchanged. We also expect no change in stance or any future rate hikes. In fact, we anticipate the earliest possible rate cut in October 2023. Downward revision to RBI’s CPI forecast for FY24 can be expected, by 10-20 bps. However GDP forecasts are estimated to remain unchanged.

Since the last policy, RBI will be evaluating trends in inflation, monsoon and sowing, changes in oil prices, movement of high frequency indicators and global developments.

Inflation: Most recent CPI print shows that retail inflation has fallen to 18-month low of 4.7% in April 2023, below RBI’s upper tolerance limit, as compared to 5.7% in March 2023.

GDP Growth: India’s GDP growth for FY23 is estimated at 7%, as per advanced estimates of National Income for 2022-23 revealed by the National Statistical Office (NSO). RBI has estimated GDP growth of 6.5% for fiscal 2023-2024.

Oil prices: The crude oil prices have fallen since April policy. International crude oil price was at $85.1 per barrel in April, and since then it has fallen to around $77 per barrel.

High-frequency indicators: Manufacturing activity picked up pace in May as Manufacturing PMI was at 58.7 versus 57.2 in April. Service sector growth showed some moderation as PMI was off its peak of 62 in April to 61.2 in May.

GST Collection: GST Collection was at ₹1.6 lakh crore for May as compared with an all-time high of ₹1.9 lakh crore in April.

System liquidity: On an average, system liquidity surplus was at ₹0.72 lakh crore in May as against April’s average system liquidity surplus of ₹1.5 lakh crore.

The RBI has increased repo rates by 250 bps since May 2022. It said that the decision to pause the April policy meet was a temporary arrangement implying the future trajectory would be aligned with the course of data emerging from various sources/points, domestic as well as global.

In the April 2023 monetary policy, RBI kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%. Subsequently, it also kept the standing deposit facility (SDF) rate unchanged at 6.25%, while the marginal standing facility (MSF) rate and the Bank Rate were also unchanged at 6.75%.

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) will announce its policy decision today. The second bi-monthly monetary policy meeting of FY24 was held from June 6 to 8 and its outcome will be announced on June 8. The rate-setting panel headed by Governor Shaktikanta Das is largely expected to leave the repo rate unchanged at 6.5%.