RBI’s withdrawal of accommodation stance as per expectation

Mumbai, Oct 06 The RBI’s decision to pause along with retaining the withdrawal of accommodation stance was in line with expectations. Importantly, the RBI has explicitly highlighted the need to use OMO sales to modulate liquidity. This will weigh down bond markets’ sentiments. Concerns on food inflation were highlighted which can impart upside to headline inflation.

Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities, says, “We believe that inflation risks remain on the upside given weather related impact as well as commodity prices. Global monetary conditions will also weigh on RBI’s policy decisions.”

The good part is that growth remains resilient and core inflation remains under check. We maintain our call for a prolonged pause on repo rate at 6.5 per cent well into FY2025 while liquidity over the medium term will be aimed at being close to neutral, he said.

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.

Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company says, “The RBI has worked hard to create a balance between growth and in

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. flation setting an example for rest of the world. This policy continues to take that hard work forward.”

Vinod Nair, Head of Research at Geojit Financial Services, says, “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.

Anuj Puri, Chairman - ANAROCK Group, says, “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 per cent yearly growth. Thanks to the stable repo rate and the resultantly stable home loan interest rates, we can expect the momentum to continue.

Shantanu Bhargava, Managing Director, Head of Discretionary Investment Services, Waterfield Advisors, says, “We expect the RBI to retain the status quo unless we see a durable drop in inflation and if steady economic activity continues.”

The RBI had overlooked data in the early aftermath of COVID since the aim was to stimulate the economy & engineer a turn-around. Since changing its stance last year, the RBI has been data driven. According to the RBI's inflation prediction for Q3 & this FY, today's policy outcome is not surprising.