RBI MPC Highlights: Sensex, Bank Nifty Surge As RBI Keeps Repo Rate Unchanged; Check Updates

Reserve Bank of India's three-day monetary policy meeting will conclude today, October 9. Experts expect the central bank to keep the repo rate unchanged at 6.50 per cent.

After the US Fed Reserve cut rates by 50 bps, the Chinese central bank and before that the European Central Bank (ECB) had cut its interest rates too. The RBI has kept the repo rate at 6.50 per cent for nine consecutive times. The question is whether the RBI will cut the rate or keep it unchanged once again.

Retail inflation may play the spoil sport this time too. Data suggests that retail inflation, measured by the consumer price index, is expected to rise to 5 per cent again in September. Bank of Baroda's analysts expects the CPI to reach around 5.1 per cent in September 2024.

CPI Inflation was 3.60 per cent in July and 3.65 per cent in August, which was  below the central bank's target of 4 per cent. Governor Shaktikanta Das has emphasized that the RBI's inflation target is 4 per cent, not the range of 2 per cent to 6 per cent.

Real GDP is expected to grow at 7.2 per cent in the current financial year as per RBI's projections. However, recent data like passenger vehicle sales and Purchasing managers index (PMI) indicates a slowdown. So RBI may continue its wait-and-watch stance.

RBI has recently flagged low bank deposit growth. Lowering repo rates could lead to more outflow of bank deposits.

When the RBI lowers interest rates, it can lead to reduced returns on deposits, discouraging savings and further slowing down banks' already low deposit growth.

However RBI can take measures like lowering Statutory liquidity ratio (SLR), giving the banks the much needed impetus. Such measures assume more significance, considering the 4,000 point fall in Bank Nifty since September 27, 2024. Incidentally it is Bank Nifty's weekly expiry today.

Repo rate unchanged at 6.5 per cent. MPC changed its monetary policy stance to neutral

Standing Deposit Facility rate remains at 6.25 per cent, bank rate and the MSF rate at 6.75 per cent

Governor said MPC will remain unambiguously focused on the durable alignment of inflation with the target, while supporting growth.

RBI Governor said that the global economy has shown resilience since the last MPC meeting in August. However, rising geopolitical conflicts, geo-economic fragmentation, financial market volatility, and high public debt present ongoing risks. Manufacturing is slowing, but services remain steady, with mixed trends in world trade.

Shaktikanta Das said that a sustained rise in food and metal prices could add to the upward risks of CPI inflation.

The exchange rate of the Indian rupee has remained largely range bound, says RBI Guv; Indian rupee least volatile among emerging market currencies, reflects strong macro economic fundamentals, he said.

Rapid growth at any cost approach will be counterproductive to NBFCs’ own health, says Guv Das;

Some NBFCs, including microfinance institutions and housing finance companies, are chasing excessive returns on their equity, he said.

Important for NBFCs to follow sustainable biz goal, compliance first culture, strong risk management structure, fair lending practices, he said.

India’s current account deficit widened to 1.1% of GDP in the first quarter of this financial year, RBI Guv; Current account deficit should remain at sustainable level, he said. FDI flows remains strong and India’s external sector remains strong, he added.

UPI Lite vault limit increased from ₹2000 to ₹5000, says Guv Das;

UPI payment limits have been hiked. It has been decided to enhance the per transaction limit in UPI 123 Pay from ₹5,000 to ₹10,000, he said.

The MPC noted that food price pressures have been disrupting the disinflation process, making it challenging to bring inflation down to the target level. To ensure inflation reaches the 4% target sustainably, the MPC voted 5-1 to keep the policy repo rate unchanged at 6.5%.

Professional forecasters expect CPI inflation to rise to 4.6% in Q3 and stabilize around 4.2-4.5% in H1:2025-26, with core inflation projected to remain subdued.

A downward trend in sovereign bond yields is noted, reflecting shifting market expectations regarding monetary policy adjustments.

RBI governor noted that while firms in the Reserve Bank surveys expect easing input cost pressures, the recent rise in key commodity prices, particularly metals and crude oil, requires close monitoring.

In the six-member committee, Saugata Bhattacharya, Professor Ram Singh, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra, and Shaktikanta Das voted to keep the policy repo rate unchanged at 6.50 percent, while Dr. Nagesh Kumar voted for a 25 basis point reduction.

Bank Nifty gained over 1% following Today's monetary policy announcement. Opening at 51,161.75, it peaked at 51,707.15 before trading at 51,468.70, up 447.70 points or 0.88%.

Growth in bank credit to NBFCs moderated to 12.2%, indicating a decrease in the share of incremental credit extended to services. This suggests that NBFCs are facing challenges in maintaining growth in their credit portfolios, according to the RBI.

The benchmark BSE Sensex surged over 550 points to reclaim the 82,000-level in morning trade on Wednesday, following the Reserve Bank of India's shift to a 'neutral' monetary policy stance, which could pave the way for potential rate cuts in future policies.

Gurmit Singh Arora, National President, Indian Plumbing Association said, The RBI's decision to keep the policy rate at 6.5% reflects an economy that is strong on some indicators but struggling with inflation. While stable rates provide some relief to borrowers, they lack the demand stimulation of lower rates, especially in real estate. Despite a positive GDP and inflation outlook, enthusiasm in the property market may fall short. Homebuyers will need to innovate to drive transactions.

Keshav Mangla General Manager of Business Development at Forteasia Realty Pvt Ltd, said, "The RBI's decision to keep the repo rate at 6.5% for the tenth consecutive time raises concerns for the real estate market. Stable interest rates limit benefits for homebuyers and developers. As the festive season approaches, the sector may need to implement price reductions to boost sales. Given the unchanged GDP growth and inflation targets for FY25, this policy mix may not support efficient economic growth, and not all segments of real estate will benefit equally from this stability."

LC Mittal, Director, Motia Group said, "The RBI's decision to keep the repo rate unchanged for the tenth time at 6.5% is acknowledged to be a reasonable move under the current circumstances given high inflationary tendencies. The shift to a neutral stance signals the RBI’s commitment to aligning inflation with growth, ensuring that the market conditions remain favorable for sectors like real estate. As for the lack of a hinge to echo any change in borrowing rates, we perceive home loan EMIs currently to remain steady, which would, in turn, positively impact demand in the housing market."

Aman Gupta, Director of RPS Group, stated, “The RBI's neutral stance after holding the repo rate at 6.5% reflects a cautious yet optimistic approach to managing inflation and growth. While this decision reduces volatility in borrowing rates for real estate, it requires careful budgeting due to ongoing inflation risks. We believe this move will bolster confidence in the housing sector, but vigilance is necessary to adapt to any economic shifts.”

Anurag Goel, Director at Goel Ganga Developments, stated, “The RBI's decision to maintain the repo rate at 6.5% is unsurprising amid current uncertainty. While the neutral stance provides stability for long-term planning, it disadvantages the real estate sector by missing the demand boost a rate cut could offer during the festive season. With unchanged GDP and inflation estimates for FY25, property market stakeholders may need to rethink strategies as rate cuts seem unlikely.”

The RBI Governor stated that interest rates will be determined by the interplay of growth and inflation, particularly influenced by the rate of inflation growth.

Shaktikanta Das stated, "We have greater confidence that inflation is moderating, but we remain acutely aware of significant risks. We have adjusted our stance because growth and inflation are well balanced, making this an appropriate time for a stance change."