In an unexpected move, the monetary policy committee decided to keep the repo rate unchanged at 6.5%. This decision is in contrast to what many economists had predicted. Since May last year, the central bank has increased the rate by 250 bps over inflation concerns.
Experts believe that RBI has pressed the pause button on the repo rate hikes and it is a positive sign for the banking, NBFC, real estate and infrastructure sectors.
“The MPC’s unanimous pause has come as a bit of a surprise. But the RBI Governor has hastened to add that they will hike again if need be. This pause can be seen as a wait-and-watch response to see how the previous six rate hikes will impact inflation and growth,” said Dr. V K Vijayakumar, Chief Investment Strategist at Gojit Financial Services.
“If the RBI’s projection of 5.2% CPI inflation and 6.5 % GDP growth turns out to be true, that would be a benign scenario for the economy and markets. The 6.5% GDP growth rate appears to be on the optimistic side when seen in the context of a slowing global economy,” he added.
“Despite the pause, food inflation is of grave concern to the RBI and they are willing to lean over backwards to slow down inflation and get it back to the tolerance band.
This is a best-case scenario and positive for the markets,” said Divam Sharma, Founder, Green Portfolio PMS.
“The companies in the following category – large debt companies, growth stocks, small and mid-cap space companies, and specific sectors like consumer durables and real estate will witness some respite in the medium term thanks to the RBI’s unanimous decision to not hike rates,” Sharma added.
Talking about the banking sector, he said that the banks will witness some short-term relief rallies as the global banking crisis fears wane.
“Now on a macro level, we could see FPI’s unwinding short-sell position over the coming months. Subsequently, we should also start seeing FPI money flowing back to Indian markets as the US fed rates peak and rate cuts get priced into the markets,” he added.
From a real estate market perspective, Shishir Baijal, Chairman & Managing Director, Knight Frank India said, “The sector has weathered multiple home loan interest rate increases from a low of 6.5% to 8.75%, supported by favourable house purchase affordability and the strong desire towards home ownership. Therefore, a pause in any further rise in the lending rates should support the existing growth momentum in the housing sector.”
“The decision to maintain the repo rate unchanged is a positive sign for the banking and NBFC sectors, and it is expected to benefit other sectors such as real estate and infrastructure. However, the persistent inflation and global banking crisis remain areas of concern, and it is crucial to monitor the overall impact of the past rate hikes,” said Sonam Srivastava, Founder at Wright Research, an investment advisory firm.
From a stock market perspective, the RBI MPC meeting’s decision to maintain the repo rate unchanged is expected to create positive momentum, especially for the banking sector,” Srivastava added.
According to Nilesh Shah, MD, Kotak Mahindra Asset Management Company, the RBI’s pause is like Sachin’s stroke on a tricky pitch but with eyes set in and having the luxury of hitting the ball wherever he wanted. The RBI had the option of a rate hike or a pause. The pause was not entirely unexpected. The RBI will watch developments and data before taking the next call. The market expects the RBI to fetch maximum run and win the match on inflation and growth, no matter which direction they hit the ball.