At the end of its three-day monetary policy meeting on Wednesday, the Reserve Bank of India (RBI) raised the repo rate by 25 basis points to 6.50%, which was in line with market expectations.
Here are the initial reactions of analysts and fund managers on RBI’s policy action and assessment of the economy and global conditions.
Vinod Nair, Head of Research, Geojit Financial Services NSE 0.00 %In a rising and high-interest rate cycle, investors need to have a cautious approach because growth and valuations will tend towards becoming modest.
Hence, investors need to shun off growth stocks and buy into defensives like FMCG, IT, pharma, and telecom. It is advised to adopt value buying as a strategy.
Sectors-wise, infra, capital goods, and manufacturing are in a decent horizon owing to stable growth opportunities and moderation in valuations. Small and midcap stocks are also appealing on a long-term basis due to a drop in valuation near its long-term averages.
Divam Sharma, Founder, Green Portfolio
A premature withdrawal would not have been wise as pointed out by the RBI Governor in the past.
The RBI will be using more of other measures like LAF to ensure liquidity to support growth while continuing to target inflation, which is in line with the US Fed.
The commentary was overall positive on expectations around CAD, inflation, and GDP growth.
Green deposits will be positive towards attracting higher capital for the renewables sector and this will be a long-term positive.
The recent monetary policy announcement by RBI Governor Shaktikanta Das showcases the central bank’s commitment to balancing economic growth with inflation control.
Coupled with the growth focus in the budget we think that policy will be crucial to walk the tightrope of growth in a time of high-interest rates and a turbulent global economy
The stock market has had a positive impact of RBI’s monetary policy announcements, especially with regards to the interest rate hike.This policy will keep India macroeconomically strong in a turbulent global scenario.
The banking sector, as one of the major beneficiaries of the repo rate hike, may see a positive impact, while sectors such as real estate and consumer durables may face some headwinds due to the higher borrowing costs.
However, the overall impact on the stock market will depend on various other factors such as global economic conditions, geopolitical developments, and the growth prospects of individual companies.
Murthy Nagarajan, head – fixed income, Tata Mutual Fund
The policy was broadly on expected lines, but some sections of the markets expected a change in stance to neutral.
The US Federal Reserve is expected to raise fed fund rates by 50 basis points and has given no indication of pause in rates, while RBI has taken a cautious stance of maintaining withdrawal of accommodation.
This should support investment activity and lower the current account deficit in the coming months.
By hiking rates and not committing to pause in rates, RBI is indicating its commitment to bring CPI inflation to the 4% band. Given the projection of CPI inflation remaining above 5% levels in the next year, the chance of rate cuts looks remote.
The 10-year GSec is expected to trade in the band of 7.25-7.50% in the coming months as the borrowing programme is expected to exert pressure on the long end of the yield curve.
Rate hike of 25 bps seems justified on the back of high persistent sticky core inflation – above 6% – to keep inflation expectations anchored.
Going ahead, tighter financial conditions and global recession fears could weigh on external demand and private investment.
The high core inflation and fading of pent-up demand are the main downside risks to consumption.
After front-loaded rate hikes since May 2022, there could be a strong case now to put a brake on monetary tightening. Further rate hikes beyond 6.5% could pose an unwarranted risk to economic growth unless inflationary pressures re-emerge.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)