Industry Reaction on RBI decision to keep policy rate unchanged 

Reserve Bank of India (RBI) on June 7, 2024 decided to keep the policy rate unchanged continuously for 8th time. Here are the reaction from Industry:  

Ritu Prakash Singh, Senior Economist and Head - MSME Research, U GRO Capital

“The Reserve Bank of India forecasting a robust GDP growth of 7.2% for FY25 indicates strong domestic demand and favorable economic conditions, providing MSMEs that are the important cornerstone of the Indian Economy with expanded market opportunities and financial stability. The Banking Sector & NBFCs have shown strong financials in FY24, supported by improved asset quality and increased profitability. The RBI's latest policy update provides a stable and encouraging outlook for MSMEs and NBFCs.”

Ashwani Dhanawat, ED & Chief, Investment Office, Shriram General Insurance Company.
“As expected MPC voted to keep the repo rate unchanged at 6.50% and retained its stance as withdrawal of accommodation.  However, this time two out of six members (Dr. Goyal and Prof. Varma) voted for 25bps cut and change in stance to neutral. Overall policy remains cautious with uncertainty on food inflation outlook. The heatwave conditions and low reservoir levels have added to food inflation risks. Monetary policy remains ‘squarely focused on inflation’, with strong growth providing policy space to remain on pause.”

Abheek Barua, Chief Economist and Executive Vice President, HDFC Bank, commentary on RBI Monetary Policy
“As expected, the RBI kept its policy rate and stance unchanged. Although, the MPC decision saw two dissents instead of the one seen in the previous policy. The one positive out of the policy was the upward revision in the GDP growth forecast to 7.2% from 7% earlier for FY25. On the other hand, inflation forecasts were kept unchanged.
 
The RBI remains in a wait and watch mode to assess domestic developments like the monsoon performance, food inflation, and the new fiscal strategy before moving on rates. We continue to see the possibility of a rate cut in Q4 2024.
 
Despite the governors’ emphasis that monetary policy decisions are driven primarily by domestic considerations, we think that any rate cut action could end up being aligned with the timing of the Fed’s rate cut cycle to limit financial market volatility.
 
On the regulatory front, the increase in bulk deposit limit to INR 3 crore from INR 2 crore, signals the RBI’s intention to encourage banks to garner greater retail deposits to fund credit growth.”

Umesh Revankar, Executive Vice Chairman, Shriram Finance 
“With headline inflation moderating, liquidity remaining stable and growth figures being impressive, many observers felt that maybe this time, the MPC may want to consider adopting a dovish stand. However, with the geo-political situation still remaining volatile and India’s food inflation staying elevated, the RBI has rightly prioritised caution by maintaining status quo on policy rates.

The RBI’s revised projection of a Real GDP growth rate of 7.2% for FY25 compared to 7% earlier is a sign of confidence in the Indian economy’s resilience. The proposal to establish a Digital Payments Intelligence Platform promises to fortify the digital payments ecosystem. The ecosystem will be further boosted by the inclusion of various recurring payments under the e-mandate framework.”

Dilip Modi, Founder & CEO of Spice Money
 
“The Reserve Bank’s decision to establish a Digital Payments Intelligence Platform marks a significant advancement for the digital payment ecosystem. As India swiftly ascends to become a digital payment leader, fueled by the extensive adoption of solutions like UPI and AePS, there has been a concurrent rise in fraudulent activities. The RBI's annual report indicates that digital payment fraud surged more than fivefold, reaching a record ₹1,457 crore in the fiscal year ending March 2024. This initiative aims to address these challenges by underscoring the necessity for a comprehensive, system-wide approach to ensure safety and security in digital transactions.
 
AePS has been witnessing a surge in fraudulent activities which has affected the trust among rural users. Vulnerabilities have been exploited by scammers resulting in significant financial losses thereby undermining user confidence. Online fraud through the Aadhaar Enabled Payment System (AePS), accounted for 11 percent of online financial scams during 2023, according to an analysis from India's cybercrime unit. While the central bank has already announced its aim to bring a standardized secure onboarding process for all, this initiative can help in curbing the fraudulent activities even further. Strengthening the trust among rural citizens in AePS is vital for the continued growth of the payment ecosystem in rural India.
 
We at Spice Money have been working tirelessly to ensure the safety and security of our customers. Addressing concerns surrounding AePS has been a top priority for us. We welcome this move by the RBI, which will help in tackling these issues, contributing to creating a robust system. We hope that the benefits of this platform will also extend to AePS, which is a crucial driver of financial inclusion and the UPI for Rural India.  The proposed platform's real-time data sharing and network-level intelligence will significantly help in creating a more secure and reliable digital payments environment thereby boosting confidence of the citizens of India.”

 Ajit Banerjee, Chief Investment Officer - Shriram Life Insurance Company
"The outcome of the RBI's monetary policy for June’24 was broadly as per market expectations, except for the fact that the decision of the rate-setting panel was taken with a majority of 4:2. The RBI seemed to be very confident that the growth momentum of the economy will continue and has accordingly revised the real GDP growth for FY25 from earlier 7% to 7.2%. The reason cited for maintaining the repo rate at 6.5% and holding on to the stance of withdrawal of accommodation was due to ongoing food inflation concerns and global uncertainties springing up negative surprises.
The RBI MPC left its inflation forecast for this fiscal year unchanged at 4.5 percent, expressing its commitment to bring the inflation level back to the target of 4% on a durable basis. The RBI governor also assured and emphasised the importance of maintaining an orderly liquidity position in the financial market, and its approach will be nimble and flexible for the same. We expect the RBI to continue to focus on fine-tuning liquidity conditions through VRR/VRRR auctions in order to align the overnight rates with the repo rate. However, larger-than-expected FPI flows could see the use of durable instruments.
The MPC meeting outcome was cheered by the equity market, but the debt market didn’t react much to the MPC meeting announcement. The market would perhaps be more keen to look for the Union Budget announcement on the government's fiscal roadmap going forward. Insurance companies with a greater focus on fixed-income portfolios in their life funds would not have been significantly impacted by this MPC decision. The equity portfolio of the insurance companies has made some positive MTM gains, though."

Dr. Poonam Tandon, Chief Investment Officer at IndiaFirst Life Insurance Company.
“The MPC kept rates  unchanged and maintained the withdrawal of accommodation stance. The resilient growth and  low inflation has made it possible to hold rates at the present level. The Governor mentioned that input costs and food inflation are still high and could pose risks to upside. On the whole, it is expected that MPC  will keep rates on hold for another couple of quarters.”

Rajiv Sabharwal, MD and CEO, Tata Capital Ltd.
“The first MPC post-election has instilled confidence and stability in the market. With steady repo rate at 6.5%, RBI is hinting towards balancing growth and inflation
Aligned with RBI’s stance, it’s imperative to have strong governance, risk management, compliance culture, and customer protection within the sector
RBI's collaborative stance and the current market conditions work well for the economy, encouraging lower interest rates and increased investments
Collaboration of regulators and market players is important for the growth and evolution of the financial sector.”

Shraddha Kedia-Agarwal, Director, Transcon Developers
"We welcome the Reserve Bank of India's decision to maintain the status quo on interest rates which reflects a cautious approach towards balancing economic growth and inflationary pressures. It offers stability in borrowing costs, supporting project planning and execution. Developers should remain agile and adapt to market shifts, focusing on innovation and meeting evolving consumer demands. Monitoring inflation trends and collaborating with policymakers will be crucial for navigating the current landscape and fostering sustainable growth in real estate."

Manish Chowdhury, Head of Research, StoxBox 
“The RBI has kept the repo rate unchanged, reflecting India's sustained growth amid uncertainties in weather, geopolitics, and AI-led tech disruptions. Despite a buoyant economic growth outlook, the central bank refrained from revising inflation forecast upward due to elevated food inflation. Confident in its inflation management efforts, the RBI aims to move closer to its 4% target without disrupting liquidity. With resilient high-frequency and fiscal indicators bolstered by an all-time high forex reserve, the RBI is well-positioned to handle any unforeseen risks. However, it remains cautious, keeping inflation forecasts unchanged due to a hot summer and low reservoir levels impacting summer crops. Additionally, the RBI looked vigilant on microfinance institutions and NBFCs charging high interest rates on small loans. Notably, the RBI emphasized it will not mirror the Fed's approach to interest rate cuts, thereby signalling a more nuanced and domestic-led approach to its monetary policy management. With most of the economic indicators suggesting the momentum in the economy to continue, we remain optimistic of further upwards revisions to the GDP forecast moving ahead. While it would be premature to expect a rate hike in the near term, we will continue to monitor the developments on the inflation front and remain in the camp of an expected rate cut in H2FY25.”

Ankush Kaul, chief business officer - Ambience Group 
“RBI has maintained the repo rate at 6.5 per cent for the last 16 months. This rate has been kept in mind by the real estate sector for a long time. There is a distinct excitement and confidence among potential buyers, which will encourage buyers to invest in both residential and commercial sectors as the festive season approaches."

Ashwinder R. Singh, Co-Chair of CII's NR Committee on Real Estate, CEO Residential at Bhartiya Urban, and Author 
"The RBI's decision to maintain the repo rate at 6.50% is a strategically sound move that reinforces stability and confidence in the real estate market. This policy stance not only sustains the current growth trajectory but also enhances affordability for potential homebuyers and commercial real estate investors. By keeping interest rates steady, the RBI ensures that financial burdens on borrowers remain manageable, thereby encouraging more investments and purchases. This is expected to drive positive demand, bolster market sentiment, and support long-term growth in the sector."

Gurmit Singh Arora, National President, Indian Plumbing Association

“While the continuation of the status quo regarding the repo rates by the RBI benefits home buyers in some aspects, it also bears some drawbacks. That being the case, although the maintained status has given an illusion of stability and market predictability in the housing loan market, the long-drawn high-interest rate regime is driving the expenses up in terms of affordability. The potential homeowners are now left in a very unenviable position of having to either spend a percentage of their monthly salary which might be more than what they previously had to borrow or having to adjust their expectations of homeownership with the hope that the interest rate will become slightly more reasonable in the future. But for the consumers who already had home loans, the monetary policymaker’s conservative policy decision allows a temporary relief against mounting EMI pressures, even as the economy is passing through tough phases.”

LC Mittal, Director, Motia Group
“The RBI’s strategy to wait and watch before initiating further rate cuts is well-appreciated, especially in the light of the eagerly awaited union budget that is expected to shed light on fiscal policy. To home buyers, this cautious stance means a higher borrowing cost period that continues to undermine the constrained demand for property in the real estate market. As much as the industry expected the RBI to cut the rates to boost housing consumption, the latter’s priority lies in curbing inflation and maintaining financial stability. Consumers that buy homes now experience the dilemma of either delaying their decision on their mortgages or handling more expensive EMIs.”

Subhash Goel, MD, Goel Ganga Developments
“This decision shows that the RBI is alert to inflation threats – the key reason why it has kept the repo rate constant – despite portraying an upbeat economic growth picture. While this policy stance makes much macroeconomic sense, it also presents efficacious challenges for prospective homeowners. As the cost of borrowing offset remained high, the affluence of attaining homeownership continues to remain a mirage to several, especially within the affordable housing space. As far as the monetary policy is concerned the biggest wait goes to the fiscal policy, similarly the home buyers wait for the ideal interest rates and the cheaper prices of the houses in the coming months.”

Aman Gupta, Director, RPS Group
“The decision analyzing the structure of the RBI currently keeping repo rate at 6. 5 percent for the eighth consecutive time is consistent with the desire of the central bank to permanently guide the inflationary expectations. As for home buyers, such an approach may also have mixed implications: the risks and opportunities will depend on the possibilities of continuing the decline of interest rates for a long time. In turn, even if the current set of bargaining factors such as high interest rates significantly slows the overall housing demand, it does offer an opportunity for those within the financial capacity of attaining a more favorable loan interest rate before any further increase. While some home buyers might be waiting for the prices of new properties to come down, others might be looking forward to take advantage of the slow market, to bargain for better prices with the developers involved.”

Gaurav Kansal, Director, KBP Group
“This means keeping the repo rate as it is will keep the borrowing costs affordable for people intending to purchase homes by maintaining the housing market’s pace. The government has signed new luxury housing projects to meet the consumers’ demand for high-end property; it will stabilize macroeconomic factors and engage new customers. It has been seen that with the boom in the Indian economy the contribution made by the real estate sector is huge hence the current repo rate policy will help in stimulating demand and strengthening the growth.”