RBI MPC Highlights: Current account deficit to remain eminently manageable, says Guv Das

"The rate hike is a reflection of the easing inflation, which has been below the regulator’s tolerance band with a moderation of 105 bps in the last two months. There could be another rate hike in the coming months before a pause on the interest rates," saidNaveen Kulkarni, Chief Investment Officer, Axis Securities PMS.

“The 25 basis points rate hike by the Reserve Bank of India today has been in line with the consensus expectations. We, however, felt the possibility of a rate pause this time around was at least 50%. On the inflation front, the major softening in India post-April 2022 was the main reason for us to expect a standstill in this policy. On the contrary, the Reserve Bank of India seems to have been more bothered about the high and sticky core inflation for more than a year. More importantly, the continued rate hikes by the Bank of England, the ECB, and the US Federal Reserves and the implications of these in the foreign exchange market influenced the decision of the Reserve Bank of India to go for another rate hike. Unless there is an unexpected flare in inflation, we would expect the Reserve Bank of India to maintain an unchanged policy rate for the remainder of 2023. This would be positive both for the debt and equity markets.” saidSujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stock Brokers.

"There is no denying the fact that the increase in the repo rate would definitely impact housing affordability. The repeated rate hikes may have a short-term impact on overall housing demand and the buyers’ overall acquisition cost would go up. This comes at a time when the real estate sector had shown recovery across important property markets driven primarily by end-users, and this hike may again impact the rate-sensitive sector. However, there is a silver lining as the government has earmarked a huge outlay on infrastructure and is geared towards higher public expenditure as outlined in Budget 2023-24. Additionally, the buying power of consumers has gone up with greater income flow in recent times. Hence, we believe that the demand for the residential segment would remain robust in the near future, any hike in interest rates notwithstanding," said Ramani Sastri, Chairman & MD, Sterling Developers

The MPC delivers a hike in line with our expectations given the need to anchor inflationary expectations. Further, the reinforcement of the need for action as inflation remains above the medium-term target of 4% signals the MPC's focus on inflation. Going ahead as inflation begins to moderate we expect real rates to reach near pre-pandemic soon and hence the need for incremental rate hikes remains limited. We expect a prolonged pause on rates with a likely shift in stance in the coming April policy," saidUpasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.

Indian shares opened higher on Wednesday, as investors bet on a smaller interest rate hike by the Reserve Bank of India, while equities benefited from a broader sentiment after markets perceived comments from Federal Reserve Chair Jerome Powell to be dovish.

The Nifty 50 index was up 0.2% at 17,757.10, while the S&P BSE Sensex rose 0.15% to 60,376.17, as of 09:16 a.m. IST.

The RBI is likely to raise rates by 25 basis points (bps) on Wednesday, to mark the final increase in its current tightening cycle, and then pause for the rest of the year, a Reuters poll showed, as retail inflation finally came within the central bank's tolerance band of 2%-6% in the last two months of 2022. (Reuters)

According to analysts, the RBI may hike the repo rate to 6.5 per cent on Wednesday. The MPC is likely to maintain its stance of “withdrawal of accommodation” and ease the pace of rate increases, said Ravi Subramanian, MD & CEO of Shriram Housing Finance.

The RBI has raised the repo rate by 225 basis points or 2.25 per cent since May 2022. In its previous policy review in December, the RBI raised repo rate by 35 bps to 6.25 per cent. Repo rate is the interest rate at which the RBI lends money to commercial banks.

The three-day meeting of the Monetary Policy Committee (MPC), the six-member rate-setting panel of the RBI, started on Monday. RBI Governor Shaktikanta Das is scheduled to announce the MPC decisions on Wednesday, after the conclusion of the meeting.