RBI MPC: Rates unchanged! Here’s what market experts say

The benchmark indices opened higher ahead of RBI policy meet outcome. However, it erased all the initial gains amid volatility post RBI announcement.

The Reserve Bank of India (RBI) RBI Governor Shaktikanta Das-led six-member Monetary Policy Committee (MPC) on Friday voted unanimously to keep the repo rate unchanged at 4 per cent.

The rate remained unchanged for the eleventh time in a row. The reverse repo rate also remains unchanged at 3.35 per cent, Das said after the MPC meeting.

The benchmark indices opened higher ahead of RBI policy meet outcome. However, it erased all the initial gains amid volatility post RBI announcement.

At 12:05 hours, Sensex was trading 150 points higher at 59,185 and Nifty was up 56 points to 17,696.

Here’s what experts make of RBI’s outcome:

Abhay Agarwal, Founder, and Fund Manager, Piper Serica

The RBI has chosen to support growth over inflation by keeping the rates at the same level. We believe it is a sensible choice because for India to attract foreign capital it will have to focus on generating growth. It has tried its best to balance the sharp increase in inflation forecast and a lower GDP growth forecast.

We believe that RBI does not want to signal a series of rate hikes that will increase the cost of borrowing and negatively impact the nascent recovery in consumer sentiment, manufacturing, and rural income. The hope is that with supply bottlenecks easing the inflation will trend down.

Equity markets will like the RBI’s continued focus on growth and its commitment to an accommodative stance to ensure there is an adequate flow of liquidity. The immediate beneficiaries will be consumers who are borrowing to purchase real estate and autos.

While rates have gone up over the last couple of months due to lower liquidity, we expect them to stay at the current level or trend down. This will benefit banks and NBFCs as the credit demand for large CAPEX has started to pick up post lockdowns, especially for large ticket infra projects.

We believe that RBI will use tactical measures like OMO, operations twists, exchange rate management, etc. to fight liquidity-driven inflation rather than increase policy rates. This is a very positive approach and will work well since RBIs foreign exchange position and overall banking system liquidity is very comfortable.

With small savings rates at all-time lows, investors are expected to continue to allocate more capital to equity markets to generate a positive long-term return. This will support equity markets in case FPIs continue to be net sellers. Overall, thumbs up to a practical and growth-supportive policy statement.

Sonam Srivastava, Founder at Wright Research

The unchanged policy rate is kept at 4 per cent and the accommodative stance of the RBI is well in sync with the market’s expectations. The overall outcome of the MPC’s decision is hinting toward recovery. However, an acknowledgment of geopolitical tension in Europe with soaring commodity prices has been stated by the governor which would mean that the expected recovery might not be at a good pace for quite some time.

The mixed messaging in the policy – accommodative while being cautious of the geo-political tensions seems to be met by volatility and no sustained direction in the market. The policy announcement is as expected and does not seem to impact the market significantly.

On the other hand, the governor has said that the banking and financial sector, along with consumption, is seeing a good recovery in high-frequency macro indicators, which is a positive. However, given the instability caused by the geopolitical tension and commodity volatility, a clear direction has not been found.

The raise in repo rates could be seen as a precursor to raising rates in the banking sector, but the impact would not be very significant. The yields also increased initially but cooled down as the announcements ended.

The governor comprehending the fact that in the future, there would be withdrawal of an accommodative stance to curb inflation would directly aid in bringing down prices of all-time high agri-commodities. This would benefit the FMCG sector and revive rural demand.

A mix of absorption and injecting liquidity seems tricky and the market is confused on the implementation of the same. Finance stocks are not taking this well and have been declining since this announcement. While banking stocks have absorbed the changes brought in by the RBI and seem to be on an upward trend.

Divam Sharma, Founder at Green Portfolio

We expect commodities companies to do well under the developments. We expect the continuity of liquidity to further support inflation, which coupled with disruptions in the supply chain can result in negative sentiments for FMCG, consumer durables, and automobile sectors as there could be an impact of 5-15% in demand.