RBI keeps policy rate quo, but Dalal Street waits

The RBI's six-member monetary policy committee, MPC, stayed status quo on the policy rate for the second time in a row, much in line with Street expectations. But it did increase Dalal Street's wait for a rate cut. By 12-30 pm, rate-sensitive indices like the BSE Auto and the BSE Realty were down up to 1.6 per cent, with the BSE barometer Sensex slipping into the red.

Shaktikanta Das, the governor of RBI, called for moving towards a goal of 4 per cent inflation. In this backdrop, the expectation of rate cut in this calendar year seems to be faded, said HDFC securities, who sees first rate cut possibly in February 2024.

S&P Global is expecting the Fed to cut only from mid-2024 and end at 4 by the end of this year. This could keep external finance conditions challenging for emerging markets like India in 2023, said Dharmakirti Joshi, chief economics officer at Crisil.

The phase of aggressive rate hikes may be behind us, but aftereffects on financial conditions, along with any upside to inflation, would be among risks to watch out for, he said.

The RBI maintains the repo rate, the rate at which the central bank lends money to commercial banks, constant at 6.5 percent.

The meeting has turned out to be a non-event, with the consensus expectations of rate cut timelines seem to have extended now. We retain our positive bias on the equity markets in the medium term, said Gaurav Dua, head of Capital Market Strategist Sharekhan.

The RBI forecasted GDP growth at 6.5 per cent, unchanged from the previous year's growth. It sees headline inflation averaging 5.1 percent, a tad lower than the previous forecast of 5.2 percent. Both growth and inflation is likely to undershoot the RBI's projections in FY24, said Aurodeep Nandi, India Economist and Vice President of Nomura India.

We believe inflation is on a sustained decline with lagging impact of RBI rate hikes and commodity prices falling drastically. We believe that disrupted supply across the world is back on stream and therefore decrease in price of coal, natural gas, oil, steel, wheat, lumber, palm oil, milk etc are sustainable. The RBI is bound to change stance in time to come, said Amar Ambani, head of investment management at YES Securities.

Nilesh Shah, the Managing Director of Kotak Mahindra Asset Management, said the RBI had reminded him of India's once opening batsman Sunil Gavaskar - standing without fear in front of a challenging global environment.

After scoring a century in a challenging wicket, Mai Hoon Na took a fresh stance to remind everyone that he is a right-handed batsman. Under RBI's direction, the Indian economy is ideally balanced between growth and inflation. The markets will be pleasantly surprised if the GDP growth for FY 24 comes as per the expectations of the RBI at 6.5 per cent.