The Reserve Bank’s decision to maintain the status quo on policy rate will support growth and keep inflation under check
Published Date – 07:25 PM, Thu – 10 August 23
New Delhi: The Reserve Bank’s decision to maintain the status quo on policy rate will support growth and keep inflation under check, said industry bodies and experts on Thursday.
The Reserve Bank of India (RBI) left its key policy rates unchanged for a third straight meeting but signalled tighter policy if food prices drive inflation higher.
The monetary policy committee (MPC), which has three members from the central bank and a similar number of external members, held the benchmark repurchase rate (repo) at 6.50 per cent in a unanimous decision.
Commenting on RBI’s decision, Ficci president Subhrakant Panda said the central bank has adopted a balanced approach by maintaining status quo on policy rates which will support growth while targeting inflation which has inched up recently.
“The outlook remains clouded due to possible El Niño conditions, and tough global outlook calls for careful monitoring even as the policy stance remains withdrawal of accommodation while allowing previous interventions to flow through the system,” he said.
Assocham secretary general Deepak Sood opined anchoring of inflation may have led to measures like incremental cash reserve ratio, but as the RBI Governor Shaktikanta Das has given an assurance it is a temporary intervention that would be reviewed on September 8.
“Besides, there is an assurance of enough liquidity in the system that should give us comfort,” he added.
The RBI Monetary Policy Committee (MPC) unanimously left the repo rate unchanged at 6.50 per cent, but reduced the money supply by raising the cash reserve ratio (CRR) to 10 per cent on the incremental NDTL (net demand and time liabilities) over the last three month, for a limited period till September 8.
Sanjay Palve, senior managing director, Essar Capital said the RBI’s decision aligns with expectations in this dynamic economic environment.
“The focus on ‘withdrawal of accommodation’ stance is expected to continue with volatile inflationary pressure due to the anticipation of a sub-normal to normal monsoon,” he said.
Rajiv Sabharwal, MD & CEO of Tata Capital, said the RBI has maintained its status quo on rates and reaffirmed its withdrawal policy stance.
This move, he added would help accelerate growth in the economy and demonstrates RBI’s balanced approach considering the current economic conditions.
Commenting on the policy, Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life said the liquidity surplus is around Rs 2 lakh crore presently, as a result of return of Rs 2000 notes to the banking system.
“Therefore, the RBI introduced a temporary incremental CRR (ICRR) of 10 per cent on incremental NDTL between mid-May and July 2023, and it will be reviewed on September 8, 2023—ahead of the festival season,” he said.
On the announcements regarding UPI, Pranay Jhaveri, MD-India and South Asia, Euronet said the announcement by the RBI to integrate conversational payment technology into UPI reaffirms India’s commitment and effort towards accelerating a digital payment ecosystem.
“This will certainly harness the innovative capabilities and plug the gap to help create a convenient and easy-to-use payment system for the users, resulting in bringing a vast number of users to the digital platform and further accelerating penetration across the nation,” Jhaveri opined.
D K Srivastava, Chief Policy Advisor, EY India, said that relying on domestic demand to take care of growth in spite of the continued supply-side challenges, the RBI has kept the repo rate unchanged at 6.5 per cent with continued monitoring of the liquidity situation.
“The fiscal landscape provides considerable reassurance for maintaining investment momentum,” Srivastava said and added the central government has demonstrated proactive measures by front-loading its capital expenditure, resulting in a remarkable growth of 59.1 per cent during the first quarter of 2023-24.
Prashant A Bhonsle, Founder and CEO, Kuhoo, said the proposed integration of Near Field Communication (NFC) technology to facilitate offline transactions is a forward-thinking move that can enhance financial inclusion and accessibility.
“Enabling retail digital payments in situations where internet or telecom connectivity is weak or unavailable will undoubtedly open new avenues for commerce and empower individuals in previously underserved areas,” Bhonsle said.
Giving perspective on RBI MPC decision, Nikhil Gupta, Chief Economist, MOFSL Group said overall, the incremental CRR was unexpected and a reduction in liquidity surplus represents monetary tightening. We expect no further hikes in interest rates in India and also believe that actual inflation in 3Q could be lower than RBI forecasts.
According to Deepak Agrawal, CIO – Fixed Income, Kotak Mahindra Asset Management Company, the RBI prefers to be in “wait and watch” mode to check if the recent food price inflation is getting generalised and prefers to keep rates on hold and keep the monetary policy unchanged.
He further said that in order to address the surplus liquidity situation, RBI has asked banks to maintain incremental CRR of 10 per cent on deposit growth between May 19 and July 28, 2023, which will reduce liquidity in the system by about Rs 90000 crore.
The RBI raised its inflation forecast for the current financial year ending March 2024 to 5.4 per cent from 5.1 per cent earlier, citing pressures from food prices. In the July-September quarter, it saw inflation at 6.2 per cent, significantly higher than the 5.2 per cent earlier forecast.
