RBI keeps repo rate unchanged at 6.5pc
The RBI’s Monetary Policy announced its decision to keep the repo rate unchanged at 6.5 per cent after having raised it by 250 basis points between May 2022 and February 2023.
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The RBI’s Monetary Policy announced its decision to keep the repo rate unchanged at 6.5 per cent after having raised it by 250 basis points between May 2022 and February 2023.
RBI Governor Shaktikanta Das said “India’s potential growth is propelled by structural drivers.”
He also mentioned that increasing geopolitical tension was impacting supply chain and putting pressure on commodity prices especially crude oil.
Following RBI's decision to maintain status quo, banks and financial institutions will largely keep lending rates stable. The decision will, most likely, have no impact on people's on loan.
In December 2023, the annual retail price inflation in India increased to 5.7%, as opposed to the 4.9% recorded in October. Headline inflation is still impacted by food price uncertainty. The MPC is still committed to keeping inflation within the 4 per cent target range.
The Gross Domestic Product (GDP) increased by 7.3%, marking the third successive year in a row.
The Monetary Policy Committee has maintained the status quo on the repo rate as inflation moderates in a resilient growing economy.
Since inflation is moderating, economic activity is steady and oil prices are lower and India is poised to be the growth engine for the global economy the markets were expecting the repo rate to be unchanged at 6.5%. "We believe markets in the near term will now be driven by upcoming earnings season and 2024 elections," Das said.
The banking sector is the most sensitive to changes in rate cycles and has been a major reason for incremental earnings in FY23 and in H1 of FY24 benefitting from the hikes and credit growth being robust and persistent.
Prolonged rate cuts will eventually lead to narrowing NIM but we expect rate cuts to begin in the last quarter and hence the trend in the banking sector is likely to continue in FY24.
NBFCs will be best positioned to benefit from cuts in rates as credit growth will improve followed by banks. Also, credit-sensitive sectors like auto and real estate will see higher demand.
Meanwhile, banking stocks gave up their early gains on Thursday after RBI's monetary policy outcome. The selling in banking stocks, specially private lenders, dragged the markets lower even as the central lender maintained status quo in its policy and kept the repo rate unchanged at 6.5 per cent.
