RBI Monetary Policy Meet LIVE Updates: Liquidity to be actively managed; OMO sales to be done via auctions: Governor Das

RBI will maintain tighter liquidity conditions to address higher Inflation risks. Short-term rates are likely to remain elevated in near term factoring in tighter liquidity conditions going forward, said Amit Somani, Senior Fund Manager – Fixed Income, Tata Asset Management.

RBI formally unleashing Bond Open Market Operations (OMO) sale tool in policy to manage liquidity would weigh on yields in near term. This tool, however, may be used only judiciously to deal with large inflows causing banking system liquidity to stay in surplus zone, he added.

RBI would target Inflation rate of 4% and not 2%-6% range, again signals the policy rates to remain higher for longer until Inflation is projected to come below 4%. RBI’s sharp focus on bringing down inflation is positive for markets in the medium-to-long term, said Somani.

The RBI reiterated caution and the current policy narrative is still more hinged to inflation uncertainty and liquidity management than on the fluid and uncertain global narrative as markets reprice ‘higher-for-longer’. As global financial conditions transmit with a lag, there could be further volatility ahead. Even as domestic inflation is likely to meet policy targets by end-FY24, elevated DM rates and record-low interest differentials pose a headwind for the RBI. Amid the changing external dynamics, the policy prerogative would ensure financial stability, which may possibly even precede inflation management in coming months,” said Madhavi Arora, Lead Economist, Emkay Global Financial Services.

Unsurprisingly, the RBI’s MPC decided to keep its policy rate unchanged at 6.5% and retained its stance of ‘withdrawal of accommodation’. The key change is a much more benign inflation forecast, suggesting that the RBI expects CPI inflation to abate to well below 6% YoY in Sep’23, and to stay at 5.6% YoY in Oct-Dec’23 and 5.2% YoY in Jan-Mar’24. We continue to expect the next policy move to be a rate cut in Q1FY25, said Prasenjit Basu – Chief Economist, ICICI Securities.

In extending the Payments Infrastructure Development Fund scheme and broadening its coverage to include PM Vishwakarma scheme beneficiaries, the Reserve Bank of India (RBI) has demonstrated a proactive approach towards bolstering the nation’s digital payments ecosystem. This move aligns with the ever-evolving needs of the industry and further paves the way for financial inclusion and a crucial support to artisans and craftspeople through end-to-end assistance.

The proposal to introduce card-on-file tokenization directly at the bank level is a game-changer for both cardholders and the financial industry as a whole. It enhances convenience and security, reducing the friction associated with digital transactions. This forward-looking initiative reflects the RBI’s commitment to fostering a robust and secure payments landscape in India, said Rajsri Rengan, India Head of Development, Banking and Payments, at FIS.

It’s a déjà vu at RBI MPC to stay status quo on key benchmark rates. There is a sense of caution visible due to inflation rise tending to act as a major macro headwind. 

We do expect downward movement in CPI in the coming months, hence bond markets may get some breather over the medium term as some section of markets was expecting upward revision. No new announcements on the liquidity front may offer some solace to the short end of the yield curve to remain anchored.

OMO sales may be undertaken if need be, but that is something markets are used to, but with auction and OMO sales not meeting with commensurate demand, bond yields could stay elevated near term. What matters is how US treasuries behave going forward – we have seen levels recede from ~4,90% to current 4.70%. Crude is less rude and has shown some easing lately, yet not fully out of the woods. 

We expect Indian bonds to trade range bound with cushion at ~7.25%-7.30% levels. With policy decision out of the way, Indian equities will turn attention to earnings season which has just begun. Expect volatilities and consolidation as we move ahead in this quarter, said Lakshmi Iyer, CEO-Investment & Strategy, Kotak Alternate Asset Managers Ltd.

The MPC is focused on aligning inflation outcomes with the target. So a tendency of the inflation numbers to move towards 4% is what we are looking for. If it goes below 4% on a durable basis, then we will shift to accommodation, said RBI Deputy Governor Michael Patra.

Cancellation of licences of urban co-operative banks is never a sudden development. Their licence is cancelled only when measures to improve their health and rehabilitate them do not work, said RBI Deputy Governor M Rajeshwar Rao.

So far, we have got back ₹2,000 notes worth about ₹3.43 lakh crore, and about ₹12,000 crore are left. 87 percent of it has come as bank deposits, says RBI Governor Shaktikanta Das.

Liquidity will be actively managed, says RBI Governor Shaktikanta Das adding that the OMO sales will be done through auctions and not via NDS-OM platform. The RBI will notify the auction, he said.

“Our liquidity management has nothing to do with bond yields going up in advanced economies,” Das said.

We will watch evolving trends on liquidity and notify OMO as and when it becomes necessary. OMO sales is part of our domestic liquidity management. We do not propose to announce any OMO calendar at the moment, said RBI Governor Shaktikanta Das.

Our liquidity management has nothing to do with bond yields going up in developed economies, Das said in post-policy press conference.

The unchanged repo rate is a festive bonanza for homebuyers and gives them yet another opportunity to make cost-optimized home purchases. If we consider the present trends, the overall consumer market looks bullish across sectors, particularly the automobile and housing markets, which in many ways reflect the health of the economy. We are entering the festive quarter with a very strong momentum in housing sales, and unchanged interest rates will act as a major catalyst for growth in the residential market. 

As per ANAROCK Research, housing sales across the top 7 cities created a new peak in Q3 2023 (despite the usually slow monsoon quarter) and stood at 1,20,280 units as against over 88,230 units sold in Q3 2022, thus recording 36% yearly growth. Thanks to the stable repo rate and the resultantly stable home loan interest rates, we can expect the momentum to continue, said Anuj Puri, Chairman – ANAROCK Group.

The RBI Governor mentioned that the pitch is turning and we will play the ball on merit. Today’s policy is like “Kapil Dev Policy”. It will manage liquidity, inflation, growth, rupee and financial sector stability in an appropriate equilibrium like a legendary all rounder Kapil Dev managed bowling, batting, fielding and captain ship. 

The RBI has worked hard to create a balance between growth and inflation setting an example for the rest of the world. This policy continues to take that hard work forward, said Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company. Read here

Anitha Rangan, Economist, Equirus noted down three statements from the RBI policy that give us a very hawkish outlook: a) comment that tight global monetary stance could persist higher than expected b) food inflation pressures may not see sustained easing and c) reserves position continuing to decline with the Sept-23 overall having seen ~$12 bn of decline to contain rupee volatility suggest that RBI is on a vigilant watch mode. 

While batting defensively on a turning pitch, RBI is remaining very careful. As long as currency is maintained, a long pause is the call. However on a turning pitch, a surprise shot can emerge at any time, Rangan said.

RBI will likely wait and watch for the next couple of quarters before it decides to reduce the interest rates.

From retail investors’ standpoint, we are almost at the peak of the interest rate hike cycle. Thus, over the next 3-6 months, retail investors should lock their funds in long-term fixed deposits at higher interest rates. Depending on the goal and timeframe of their investment, they can stagger this investment into a few smaller FDs across different commercial and small finance banks, as well as NBFCs. 

On the other hand, bond markets have already been discounting rate cuts, and 10-year G-Sec yields are down by 30 bps from this year’s peak levels. Home loan borrowers would do well to stick to their floating interest rate loans for now, even if fixed-rate loans are available at some discount, said Anshul Gupta, Co-Founder and Chief Investment Office, Wint Wealth.

The Indian stock market indices traded higher on Friday after the Reserve Bank of India (RBI) kept policy rates unchanged in its October monetary policy. The RBI Governor Shaktikanta Das-led Monetary Policy Committee (MPC) decided unanimously to keep the policy repo rate unchanged at 6.50% The central bank also kept the inflation forecast for FY24 unchanged at 5.4% and GDP growth estimates for FY24 unchanged at 6.5%.

The equity markets reacted positively to the RBI policy and now the market’s attention is anticipated to shift towards global market dynamics.

The Sensex was trading 249.28 points, or 0.38%, higher at 65,880.85, and the Nifty 50 was up 76.95 points, or 0.39%, at 19,622.70. Catch Live Market Updates here

“The RBI has kept interest rates on hold for the fourth time in a row, which is a prudent move given inflationary trends largely driven by food prices. The economic activities remain resilient so far, however, headwinds from weak global demand, volatility in the global financial markets, and uneven monsoon, pose risks to the future outlook. 

Though, we can expect a rate-lowering cycle likely from H2CY24, depending on macroeconomics stability and no global shocks,” said Nish Bhatt, Founder & CEO, Millwood Kane International.

On a positive note, interest rates haven’t increased as anticipated, however they are expected to remain elevated for an extended period. This will have an implication on rate-sensitive sectors like banking, auto, core industries, and heavy-weighted balance sheet companies. 

The elevated global bond yields and appreciation of the US dollar will affect the domestic economy and capital flows. However, it should not have a deep overhang effect on the economy but rather a mixed bias in the short term. The inclusion of government securities in the global bond index and moderation in inflation, like food & international commodity prices, will support INR and domestic corporate profit even in a volatile global currency market, said Vinod Nair, Head of Research at Geojit Financial Services.

The RBI’s decision to maintain the status quo in its policy has been received positively by the market, despite growing concerns about rising inflation on a global scale. Nevertheless, the impact of this decision is expected to be limited, as the market’s attention is anticipated to shift towards global market dynamics, notably the dollar index and US bond yields, said Santosh Meena, Head of Research, Swastika Investmart Ltd.

Technically speaking, Nifty has managed to surpass the 50-day moving average (DMA), suggesting potential for a further recovery towards the 20-DMA level of 19,800. However, a significant bullish momentum is projected to materialize only upon breaching the 19,800 mark, he added.

The monetary policy statements in October 2023, as expected, maintained the status quo on all points. Contrary to common belief, the RBI did not lower its growth forecasts. According to the inflation projection, the RBI anticipates persistent headline inflation even in FY25. According to the RBI’s inflation forecast, the real policy rate would be in the 100 to 150 basis point range in FY25. This is consistent with the central bank’s preference. As a result, a rate cut in the next 12 months is exceedingly unlikely. 

On the plus side, the governor expressed strong confidence that India will maintain strong growth and that inflation will continue to fall, albeit slowly. These forecasts are encouraging for both the equity and debt markets in the medium term. However, the strong possibility of the RBI remaining on hold for an extended period of time, as well as the continuance of liquidity tightening, is bad for interest-sensitive industries.

The Reserve Bank of India on Friday said it will continue to focus on major risks posed by high inflation as well as the liquidity deficit in the banking system while maintaining its status quo on key policy rates for the fourth time in a row.

The central bank said the inflation outlook was clouded by uncertainty following uneven kharif sowing and volatile global food and energy prices.

The MPC kept both growth and inflation forecasts for the current fiscal at 6.5% and 5.4%, respectively. Read here

The Reserve Bank of India’s (RBI) on Friday kept the GDP growth forecast for FY24 unchanged at 6.5%.

In its bi-monthly monetary policy announced on October 6, RBI Governor Shaktikanta Das said the domestic economic activity exhibits resilience on the back of strong domestic demand in contrast to global trends.

The central bank kept the July-September 2023 (Q2FY24) GDP growth forecast unchanged at 6.5% and that for Q3FY24 at 6.0%. Read full report here

According to the Reserve Bank’s enterprise surveys, manufacturing firms expect higher input cost pressures but marginally lower growth in selling prices in Q3 compared to the previous quarter. Services and infrastructure firms expect a moderation in growth of input costs and selling prices. Taking into account these factors, CPI inflation is projected at 5.4% for 2023-24, with Q2 at 6.4%, Q3 at 5.6% and Q4 at 5.2%, with risks evenly balanced. CPI inflation for Q1:2024-25 is projected at 5.2%, mentioned the Monetary Policy Statement release. Read here

The release of the remaining impounded I-CRR funds tomorrow along with pickup in government spending are expected to ease liquidity conditions. Festival time increase in currency demand may, of course, act as a counterbalancing factor. It is a turning pitch and we will play our shots carefully. Going forward, while remaining nimble, we may have to consider OMO-sales (Open Market Operation sales) to manage liquidity, consistent with the stance of monetary policy. The timing and quantum of such operations will depend on the evolving liquidity conditions, said Governor Das.

There was hardly any surprise in the October policy but the tone of the RBI Governor remained hawkish as he reiterated the central bank’s focus on bringing inflation sustainably down. The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) unanimously decided to keep the repo rate unchanged at 6.5 per cent on Friday. The central bank also retained its policy stance as the “withdrawal of accommodation” with five out of six MPC members voting in favour of this. 

Check five key highlights of the RBI MPC meeting outcome here

Given the growing acceptance and benefits of tokenisation of card data, it is now proposed to introduce Card-on-File Tokenisation (CoFT) creation facilities directly at the issuer bank level. This measure will enhance convenience for cardholders to get tokens created and linked to their existing accounts with various e-commerce applications, RBI Governor Das said.

It has been decided to increase the existing limit for Gold Loans under the Bullet Repayment scheme from ₹2 lakh to ₹4 lakh in respect of Urban Co-operative Banks (UCBs) who have met the overall target and sub-targets under the Priority Sector Lending (PSL) as on March 31, 2023. This measure is in pursuance of our earlier announcement that suitable incentives shall be provided to UCBs that have met the prescribed PSL targets as on March 31, 2023.

With a view to strengthen the extant regulatory framework governing project finance and to harmonise the instructions across all regulated entities, the extant prudential norms for projects under implementation have been reviewed, RBI Governor Shaktikanta Das said. 

A comprehensive regulatory framework applicable for all regulated entities is now proposed to be issued. Detailed draft guidelines will be released for public comments, he added.

Moderation in excess liquidity conditions as a result of the combined impact of I-CRR and advance tax outflows in September has resulted in greater recourse to the marginal standing facility (MSF) by banks. Elevated levels of MSF borrowings amidst substantial funds parked under the standing deposit facility (SDF) is symptomatic of skewed liquidity distribution in the banking system. This got reflected in the firming up of the weighted average call rate (WACR) – the operating target of monetary policy, said RBI Governor Das.

Despite such hardening at the short-end of the term structure, the average term spread in the G-sec market remained at around 40 basis points in August-September suggesting stable financial conditions, he added.

The RBI’s aim is to align inflation to the target on a durable basis while supporting growth. Emphatically reiterate that our inflation target is 4% and not 2 to 6%, said RBI Governor Shaktikanta Das

India 10-year government bond yield rises 5 bps to 7.26% after the RBI Governor announced that the central bank may consider OMO sales of government securities to manage liquidity consistent.

The current account deficit for the first quarter of the current financial year 2023-24 declined to 1.1% of GDP from a year ago, said RBI Governor Shaktikanta Das.

The moderation in system liquidity has led to greater recourse of Marginal Standing Facility (MSF) by banks. There is also skewed liquidity distribution among banks. It is a turning pitch and we will play our shots accordingly, said RBI Governor Shaktikanta Das.

RBI may consider OMO sales of government securities to manage liquidity consistent with the stance of monetary policy, RBI Governor Shakatikanta Das said. The timing and quantum of such operations will depend on prevailing liquidity conditions, he added.

Global headline inflation could remain high for a longer period than estimated, in contrast to global trends, domestic economic activity exhibits resilience on the back of strong domestic demand, says RBI Governor Shaktikanta Das.

RBI maintains CPI inflation forecast for FY24 at 5.4%

– CPI inflation forecast for Q2FY24 raised to 6.4% from 6.2%

– CPI inflation forecast for Q3FY24 cut to 5.6% from 5.7%

– CPI inflation forecast for Q4FY24 left unchanged at 5.2%

– CPI inflation forecast for April-June 2024 unchanged at 5.2%

RBI kept GDP growth forecast for FY24 unchanged at 6.5%. 

– Q2FY24 GDP growth forecast unchanged at 6.5%

– Q3FY24 unchanged at 6.0%

– Q4FY24 GDP growth forecast unchanged at 5.7%

– GDP growth forecast for April-June 2024, or Q1FY25, unchanged at 6.6%

RBI kept the repo rate unchanged at 6.5%. Standing Deposit Facility and Marginal Standing Facility rates also left unchanged at 6.25% and 6.75%. MPC voted to remain focused on withdrawal of accommodation by 5 votes to 1.  

India is focussed on macro stability and fundamental growth. The external sector remains manageable. India is poised to become the new growth engine of the world. The twin balance sheet stress is replaced by twin balance sheet advantage, said RBI Governor Shaktikanta Das.

RBI maintains status quo on the policy stance. It is retained at ‘Withdrawal Of Accommodation’ with 5 of 6 MPC members voting in favour of this, announced RBI Governor Shaktikanta Das.

The Reserve Bank of India (RBI) on October 6 maitained status quo on policy rates and stance of its monetary policy. The RBI kept the repo rate unchanged at 6.5%.

Monetary policy focus remains to align inflation at 4% target, said RBI Governor Shaktikanta Das

Watch RBI Governor Shaktikanta Das’ Monetary Policy speech here. 

The important event of today, the MPC’s monetary policy, is unlikely to impact the markets since no changes are expected in policy rates or stance. From the market perspective, the more important thing will be the US jobs data expected tonight. If the jobs data comes strong the market will react negatively discounting a rate hike by the Fed in the coming policy meeting. On the other hand, if the jobs data is weak, the market will rally discounting a pause by the Fed, said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Expected Q2 results will influence stock prices in the coming days. Financials, particularly banking, automobiles, hotels, real estate, cement and capital goods will do well. A possible surprise may come from IT in the form of higher order bookings. Even if the results are expectedly poor, the stocks may rebound on the back of better orders and commentary, he added.

Interest rate sensitive banking stocks traded higher ahead of the announcement of Reserve Bank of India’s (RBI) monetary policy today. The Bank Nifty index gained 0.20% to trade above 44,300 level.

The top banking gainers included IndusInd Bank, Bank of Baroda, AU Small Finance Bank, IDFC First Bank, among others that rose 0.5-1%.

The RBI is widely expected to keep its policy rates unchanged while adhering to its stance of ‘withdrawal of accommodation.’ 

A repo rate pause will be supportive of the real estate sector in maintaining its current momentum. With the last few revisions, the repo rate has gone up by 250 bps, resulting in 160 bps hike in the base lending rate, with the last three revisions being completely passed on to the home buyers. This has started to impact housing demand, especially in the affordable segment. The mid segment too has seen growth moderating in the last few quarters. A further increase in the repo rate could potentially dampen buyers’ sentiment and impact housing affordability, said Shishir Baijal, Chairman and Managing Director, Knight Frank India.

We expect the Reserve Bank of India’s Monetary Policy Committee (RBI MPC) to keep the repo rate unchanged to remain supportive of growth. However, the central bank will likely maintain a precautionary stance because of the inflationary pressure arising from external factors such as rising crude prices and Indian currency, which is at an all-time low, he added.

The Indian stock market indices Sensex and Nifty 50 opened higher on Friday ahead of the announcement of the RBI policy. The Sensex gained over 200 points at 65,831, while the Nifty 50 traded 0.4% higher above the 19,600 level.

All the sectoral indices traded higher led by Nifty Metal, Nifty Auto, Nifty Pharma and Nifty Bank. Catch Live Market Updates here

Reserve Bank of India (RBI) Governor Shaktikanta Das will unveil its fourth monetary policy decision of fiscal 2023-24 today after a two-day review that began earlier this week. Market analysts and economists on D-Street widely expect the central bank to keep rates unchanged on India’s easing inflation print and maintain its hawkish policy stance.

Majority of economists estimate that the RBI would keep its key repo rate unchanged at 6.50 per cent at the conclusion of the MPC meeting, with only a few expecting a 25 basis point hike. Analysts also do not expect the central bank to change its stance from ‘withdrawal of accommodation’. However, the recent uptick in international crude oil prices are likely to keep the MPC’s focus on India’s inflation projections in the forthcoming quarters. Read full report here

Given the current circumstances, the RBI is likely to prioritise supporting economic growth, especially during the festive season, while remaining cautious about inflation. Therefore, we anticipate that the RBI will keep its policy rates unchanged, with a unanimous decision, while adhering to its stance of ‘withdrawal of accommodation.’

We do not anticipate any further rate hikes by the RBI in this fiscal year. The MPC is expected to consider rate cuts after the first quarter of the upcoming fiscal year.

According to stock market experts, Dalal Street is expecting status quo on interest rates and hence rate sensitive segments like banking, auto, realty and consumer durable segments have started to give big movement ahead of the RBI policy meeting outcome.

They said that Q2 results for FY2023-24 would be beginning from next week. Hence, one should buy stocks in such a way that they benefit from both RBI MPC meeting outcome and quarterly results season. They advised investors to buy stocks of the above mentioned sectors that deals in premium product segments. Read here

Inflation for the first half of 2024 is expected to be in the band of 5-5.5% and based on the RBI Governor’s comment last month that ‘monetary policy should be forward looking’, we expect RBI to continue with a pause in policy rates.

Further given the rise in global bond yields, dollar strength and higher crude oil prices we expect RBI to continue with a ‘withdrawal of accommodation’ policy stance. Core liquidity in the system is likely to get tightened in the second half, hence we don’t expect RBI to take permanent liquidity withdrawal measures, said Deepak Agrawal, CIO – Debt, Kotak Mahindra Asset Management Company.