'RBI has given a Main Hoon Na policy'

December 07, 2022 11:51

A still from the film, Main Hoon Na

The Reserve Bank on Wednesday expectedly raised the benchmark lending rate by 35 basis points -- the fifth increase since May -- saying it remains focussed on bringing down the inflation to a tolerable limit.

Reactions to the rate hike:

Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company: The RBI has given a "Main Hoon Na' policy, reassuring the market. In a world where central banks are fighting to regain credibility, the RBI stands tall managing conflicting objectives of growth and inflation admirably. A data-driven RBI will keep on playing balls on merit and continue to keep the growth score board moving with inflation under check.

Rahul Kalantri, VP Commodities & Currency, Mehta Equities Ltd: The RBI raised its key repo rate by 35 bps to 6.25%, the sixth rate hike in a row, amid slowing inflation due to moderation in food prices, as widely expected. Although inflation hit a three-month low in October, it remained above the RBI's tolerance range.

Nikhil Gupta, Chief Economist, Motilal Oswal group: The RBI Governor made it clear that the fight against inflation will continue, while India's growth remains more resilient. It is, thus, clear that there will be at least one more rate hike of 25bp in CY23.

Madhavi Arora, Lead Economist, Emkay Global Financial Services: We note that while the governor justified INR's resilience on net, a relatively dovish tone would not have augur well for INR which has seen sharp correction vs peers in last couple of days.

This has been on account of already low forward premia in FX, and signalling of a pause would have further pressured the FX fwd premia on the downside, making carry trades less attractive for FPIs, implying fears of unwinding of these trades, ceteris paribus.

A 35bps hike today implies the ex-post real rates still sub 1% -- RBI's estimated real neutral rate, keeping 6-month ahead inflation as an anchor (a more certain trajectory vs one-year ahead), which may imply more space for another shallow hike of up to 25bps to reach a neutral rate (albeit not necessarily implying end of cycle) .

At this point, we still think that the RBI would not turn too restrictive however, the extent of global disruption will remain key. We are closely watching the global pace of inflation deceleration and how the impending recession will shape DM central bank policies, which could influence the RBI's reaction function. The still-fluid global situation might require frequent adjustments in macro and policy assessments ahead as far as terminal rates are concerned.

Sandeep Bagla, CEO, Trust Mutual Fund: RBI policy was partly as per expectations and partly a surprise for the market participants. Market was expecting RBI to take the foot off the pedal by providing an accompanying commentary which was dovish.

RBI appears to be focused on bringing inflation down over the medium term, and rightly so. RBI hardly mentioned the importance of supporting growth, calling it resilient and robust. The focus on inflation control should eventually soothe bond markets as lower inflation in the medium term is good for bond holders.

Markets should also take relief from the tumbling crude oil prices in the international markets. Rate hike as per expectations, commentary hawkish which was not expected but is appropriate and overall, a good policy which should give confidence to bond markets in the long run.

Nish Bhatt, Founder & CEO, Millwood Kane International: The repo rate is now at a more than 4-year high. The softness in retail inflation has been the primary reason for the slower rate hike. The RBI has hiked rates for the fifth consecutive time this calendar year.' The central bank is expected to maintain the status quo in H1CY23, the cumulative rate hike has been 225 bps till now in this cycle. The economic growth, the trajectory of crude oil, inflation, and the geopolitical situation will guide RBI's action in H2CY23.

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