Here’s how market experts reacted

The MPC also decided unanimously to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.

The latest move by the central bank was taken in a bid to contain the rising inflation, which has remained above the RBI’s target of 6 per cent for the past four months.

RBI’s move was largely anticipated and was mostly factored in by the market participants as there was no knee jerk reaction in the benchmark indices that ended 0.4 per cent lower on Wednesday. The S&P BSE Sensex fell 214.85 points (0.39 per cent) to end at 54,892.49 while the Nifty 50 slipped to 60.10 points (0.37 per cent) to settle at 16,356.25.

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Here’s how market analysts, economists and experts reacted to RBI’s rate hike:

  • Dhiraj Relli, MD & CEO at HDFC Securities said, “The outcome of the MPC meet was in line with most of our expectations except that the repo rate hike came in at 50 bps vs 40 bps expected by us. RBI noted that inflation pressures have intensified and expects inflation to remain above the upper tolerance band of 6% for the first three quarters of FY23. The RBI hiked CPI inflation forecasts by 100 bps to 6.7% (vs earlier forecast of 5.7%). The MPC policy actions’ impact on inflation will only materialise after couple of quarters. The RBI governor has hoped for more fiscal measures from the Govt to bring inflation under control faster. While the real GDP growth projection for FY23 is retained at 7.2% based on the fact that drivers of domestic economic activity are getting stronger, they face headwinds from global spillovers in the form of protracted and intensifying geopolitical tensions, commodity prices, COVID-19 related lockdowns or restrictions in some major importation, slowing external demand and tightening global financial conditions on the back of monetary policy in advanced. This number may come up for some downward revision in the forthcoming MPC meets. The bond markets and equity markets reacted well to the MPC outcome being relieved that the MPC did not sound more hawkish than most expectations. Absence of a CRR hike also was a relief. Stock prices of rate sensitive sectors including Auto, Banks, Finance, Durrables, Realty have reacted well to the MPC outcome due to the above. However, this upmove may need more triggers to continue. While a revisit of the pre Covid repo rate of 5.15% over the next 1-2 meets is a given (vs 4.90% currently), most economists expect this to go above 5.15%. A lot in this regard will depend on how soon the inflation peaks out and begins to fall and when do the global Central Banks feel that they are done with the rate hikes for now.”
  • Nikhil Gupta, Chief Economist at MOFSL group said, “The RBI hikes the repo/SDF rate to 4.9%/4.65% today. This is higher than our forecast of 4.75/4.5% and the market consensus was for a hike of 40-50bps. The decision was taken unanimously by all MPC members. Interestingly, while the RBI increases its FY23 inflation forecast to 6.7%, GDP growth projection is kept unchanged at 7.2%. We wonder that if higher interest rates don’t hurt growth, how will it help bring down inflation? It also suggests that most of the excess inflation is due to global/supply-side factors. The Governor mentions that even after today’s hikes, the policy rate is below the pre-pandemic levels (of 5.15%/4.9%). Since the RBI continues to forecast strong growth, it is very likely that it delivers another 25bps hike on 4th of August before it takes a pause. Our fear is that growth could see a serious deceleration in H2FY23 and FY24 on the back of such tight tightening and structural constraints.”
  • Shishir Baijal, Chairman & Managing Director at Knight Frank India said, “A repo rate hike of 50 bps was imminent given the current inflationary trajectory and geopolitical concerns. Although the government has taken various measures to control domestic inflation such as food export restriction and cut in excise duty, prolonged war and spike in global crude oil price is still worrisome. From a real estate perspective, home loans are set to get costlier. Banks have already raised the interest rate on home loan by 30-40bps since the earlier repo rate hike by the RBI in May and now with the repo rate cumulatively higher by 90 basis point there will be further increase in interest rate for homebuyers. Rising interest rate along with elevated property construction cost and product price pressures could adversely impact on the real estate buyer’s sentiment. We hope that economic recovery and household income growth will serve as a cushion for sustaining consumer demand in the face of this rate hike. Further, monetary policy tightening by central banks globally and any resolution on the prolonged Russia – Ukraine war will bring price stability.”
  • Amar Ambani, Head – Institutional Equities at YES SECURITIES said, “On the expected lines, RBI unanimously re-emphasized its endeavor to contain inflation through withdrawal of the accommodative stance and normalisation of the policy rates. 50bps hike in the repo rate was very much factored in the 10yr yields which moved above 7.5% before the policy outcome, only to retreat lower to 7.45%. Markets are taking respite from the fact that the central bank did not move on the CRR hike, as feared earlier. On inflation, RBI now sees CPI average for FY23 to 6.7%, 100bps higher than the earlier estimate, with the revision primarily attributed to food prices. CPI inflation is likely to remain above the tolerance level of 6% till December 2022 and fall to 5.8% in Q4 FY23. RBI emphasized that the recent fiscal measures have moderated the inflation expectations. However, the inflation projection seemed to be a conservative one, as it assumes Oil to have peaked out and monsoon rainfall to be a normal one. So, the CPI projections are subject to revisions, depending on the magnitude of the supply-side risks. On growth, RBI retains GDP growth for FY23 at 7.2%, emphasizing improving aggregate demand and capacity utilization in manufacturing. On the policy rate outlook, the pronounced priority to combat inflation has paved the path for further rate hikes, with the repo rate seen proximal to 5.75% by the end of FY23.”
  • Rohan Pawar, CEO at Pinnacle Group said, “During the pandemic, the low interest rate regime had boosted the housing demand. RBI’s decision to hike the interest rate again by 50 bps to 4.90 was expected to tackle the tight inflation of the country. The increase of rates could adversely affect housing demand because of increased EMIs and lower eligibility on home loans. This will create an impact on the ongoing growth momentum in the sector in addition to increasing input costs. However, we still believe that preference of homebuyers for owning a home will continue to boost demand.”
  • Nish Bhatt, Founder & CEO at Millwood Kane International said, “The RBI has yet again hiked rates, this was the second hike in two consecutive months – rarely has the central bank been so aggressive on rates. While the quantum of hike in repo rate was on the upper end of the market expectation. The RBI moving its focus to the withdrawal of accummodative policy signals the end of easy monetary policy. The RBI estimate of inflation above the 6% mark for FY23 will not pinch much provided the growth rate is high to square that off. The hike in limit for loans for state and rural co-operative banks for residential and commercial real estate is yet another step to boost funding avenues for the real estate sector. It will ensure liquidity and funding for the sector, thereby boosting demand in the rural pockets of the country.”
  • Sanjay Dutt, MD & CEO at Tata Realty and Infrastructure said, “The rate hike of 50 basis points was expected, given that the RBI has been maintaining repo rates for the longest time in history. Inflation is pushing the RBI to create a manageable growth path for the GDP, which is currently projected at 6.7 percent under normal circumstances, owing to the geopolitical situation and global economic slowdown. However, it is dependent on the global economic situation. Raising the lending limits by 100% for cooperative banks is a positive step that will encourage housing development outside of Tier 1 and Tier 2 cities. What needs to be watched out for in the future is the inflation trajectory, because the input cost for supply is on the higher side, and when combined with the loan rates, it will cause mild discomfort for home buyers because prices will now rise and will quickly return to pre-pandemic levels. Overall, we are in the Rise Economy period where we need to arrest this and make sure proactive efforts are made by the Government and reverse the cycle. I genuinely believe there would be some Central Government initiatives to focus on the larger picture”
  • Kaushal Agarwal, Chairman at The Guardians Real Estate Advisory said, “The RBI’s decision to hike the repo rate was aimed at re-anchoring inflation expectation and will eventually result in the strengthening of the economy. An unstable economy is not conducive to the overall health of the real estate industry and therefore, the RBI’s approach towards reviving the economy so far has enabled a robust recovery in the real estate sector. The all-time low home loan interest regime boosted the housing demand and helped the economy to get back to the pre-COVID levels. The rise in property prices due to the increased interest rates, metro cess and higher stamp duty has not affected the sales in the past couple of months which proves that there is a genuine demand. The move to hike the repo rate might temporarily limit the growth momentum of the sector but the demand will continue to sustain.”
  • Niraj Kumar, CIO at Future Generali India Life Insurance Company said, “MPC has delivered a well-calibrated ‘Complementary and a Balanced Policy’ in conjunction with the supply-side fiscal measures announced earlier by the government, to rein in the persistently elevated inflation levels. The undertone of the policy and pause on CRR was reassuring with MPC reiterating its commitment to being supportive of growth recovery. Overall a realistic policy, wherein MPC has reprioritized inflation head-on and taken cognizance of the current inflationary risks stemming from the geopolitical disruptions and higher commodity prices and has decided to frontload the actions and play a complementary role to the government, in an effort to balance out the inflation risks.”
  • Shanti Lal Jain, MD & CEO at Indian Bank said, “As expected, to curb the inflationary pressures, RBI has hiked the policy rates by 50 bps ensuring price stability.” The series of measures including reduction of excise duty on Petrol/Diesel announced by the Government are all likely to help in tempering the inflation trajectory. The revision of inflation projection for the current fiscal at 6.7%, adding that RBI is committed to rein-in inflation while keeping growth in mind. More relaxation to Co-operative Banks will further help in bank credit growth and financial inclusions. Much thrust has been given on Digital penetration by enhancing limit of e-mandate on cards, linking of UPI to Credit Cards (Rupay) and enhanced subsidy on PIDF (Payment Infrastructure Development Fund) scheme. There is a gradual recovery in the economy and hence the withdrawal of accommodation in a calibrated manner is supportive to the growth while containing the inflation.”

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