RBI ends the fiscal year with a smaller rate hike
- The MPC meeting of the RBI decided to hike the repo rate by 25 bps by a majority (4:6). The repo rate now stands at 6.5%.
- The stance of the committee remained unchanged on withdrawal of accommodation by a majority (4:6).
- The Liquidity Adjustment Facility (LAF) corridor now ranges from 6.25% (SDF) to 6.75% (MSF).
- Liquidity remains in surplus, with an average daily absorption of Rs. 1.6 lakh crore under the LAF facility.
- Higher than targeted inflation and tighter financial conditions led by aggressive policy actions across advanced economies were the main reasons cited for the rate hike.
| Market Reaction | Yesterday Close | Post Policy (11 AM) |
|---|---|---|
| 10 Year GSEC | 7.30% | 7.34% |
| Wtd Call Rate | 6.11% | 6.38% |
| USD/INR | 82.86 | 82.72 |
| Nifty 50 | 17,721.50 | 17,823.85 |
Growth outlook of the RBI remains positive on account of the following factors :
- The MPC meeting of the RBI decided to hike the repo rate by 25 bps by a majority (4:6). The repo rate now stands at 6.5%.
- The stance of the committee remained unchanged on withdrawal of accommodation by a majority (4:6).
- The Liquidity Adjustment Facility (LAF) corridor now ranges from 6.25% (SDF) to 6.75% (MSF).
- Liquidity remains in surplus, with an average daily absorption of Rs. 1.6 lakh crore under the LAF facility.
- Higher than targeted inflation and tighter financial conditions led by aggressive policy actions across advanced economies were the main reasons cited for the rate hike.
- RBI expects CPI inflation at 5.3% for FY24, with Q1 at 5%, Q2 at 5.4%, Q3 at 5.4% and Q4 at 5.6%.
Future course of monetary policy
Going forward, we expect the RBI to be more data dependent in deciding the future course of monetary policy. Trends in core inflation (currently exceeding the upper tolerance limit) and policy actions across advanced economies would be the key indicators affecting a change in stance.
Hawkish tone in the Feb’23 meeting suggests another rate hike of 25 basis points in the next fiscal year.
Policy rate actions across other major economies
| Country | Policy Rates in FY23 (%) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Emerging | April | May | June | July | Aug | Sep | Oct | Nov | Dec | Jan | Feb | ||
| China | 3.70 | 3.70 | 3.70 | 3.70 | 3.65 | 3.65 | 3.65 | 3.65 | 3.65 | 3.65 | 3.65 | ||
| India | 4.00 | 4.40 | 4.90 | 4.90 | 5.40 | 5.90 | 5.90 | 5.90 | 6.25 | 6.25 | 6.25 | ||
| South Africa | 4.75 | 4.75 | 4.75 | 5.50 | 5.50 | 6.25 | 6.25 | 7.00 | 7.00 | 7.25 | 7.25 | ||
| Brazil | 11.75 | 12.75 | 13.25 | 13.25 | 13.75 | 13.75 | 13.75 | 13.75 | 13.75 | 13.75 | 13.75 | ||
| Developed | |||||||||||||
| EuroZone | 0 | 0 | 0 | 0.50 | 0.50 | 1.25 | 2.00 | 2.00 | 2.50 | 2.50 | 2.50 | ||
| U.S* | 0.50 | 1.00 | 1.75 | 2.50 | 2.50 | 3.25 | 4.00 | 4.50 | 4.50 | 4.50 | 4.75 | ||
| U.K | 0.75 | 1.00 | 1.25 | 1.25 | 1.75 | 2.25 | 2.25 | 3.00 | 3.00 | 3.50 | 3.75 | ||
*Upper range of Central bank interest rates
TruQuest is knowledge series launched by TruBoard Partners providing succinct updates and views on:
- Liquidity outlook
- India’s macro economic view
- Trends within the infrastructure, Real Estate and Renewable Energy sectors
- Impact analysis of new regulations and policies on lending and capital flow
Team:
Nandkumar Surti, Co-Founder
Ria Rattanpal, Research Associate
Komal Chavan, Marketing Associate
Author:
Ria Rattanpal, Research Associate
Komal Chavan, Marketing Associate
Disclaimer
The data and analysis covered in this report of TruQuest has been compiled by TruBoard Pvt Ltd and its associates (TruBoard) based upon information available to the public and sources believed to be reliable. Though utmost care has been taken to ensure its accuracy, no representation or warranty, express or implied is made that it is accurate or complete. TruBoard has reviewed the data, so far as it includes current or historical information which is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Information in certain instances consists of compilations and/or estimates representing TruBoard’s opinion based on statistical procedures, as TruBoard deems appropriate. Sources of information are not always under the control of TruBoard. TruBoard accepts no liability and will not be liable for any loss of damage arising directly or indirectly (including special, incidental, consequential, punitive or exemplary) from use of this data, howsoever arising, and including any loss, damage or expense arising from, but not limited to any defect, error, imperfection, fault, mistake or inaccuracy with this document, its content.
