The Reserve Bank of India Monetary Policy Committee announced on April 5, 2024 its decision of keeping the repo rates unchanged at 6.5 per cent for the seventh straight time.
The RBI Governor Shaktikanta Das forecasts the India GDP growth rate at 7 per cent for FY25. Additionally, the Consumer Price Index (CPI) inflation has been projected at 4.5 per cent for fiscal 2025.
Top Bankers of India believe that keeping the interest rate unchanged highlights the need for strategic foresight and prudent management in the Indian banking sector. They also note the uncertain geopolitical tensions and adverse climate change and their impact on the economy.
Bankers further highlighted that the decision to expand permissible rupee interest derivative products for small finance banks will help the banking sector to enhance hedging strategies, fortify resilience and navigate market dynamics with confidence.
Here’s what the bankers said:
Dinesh Khara, Chairman, State Bank of India
Tracking the market expectation of the status quo, the monetary policy statement is an affirmation of goldilocks for India with high growth and low inflation in FY25 and FY26. Consumers’ confidence in urban households continues to improve, while Rural Demand remains upbeat. The regulatory policy as usual has continued the deepening of payment systems with new functionality in UPI. The review of the LCR framework with the advent of 24/7 payment systems could act as a positive enabler to address frictional liquidity mismatches. The trading of sovereign green bonds in IFSC is also a welcome move and will broaden the markets.
Ajay Kumar Srivastava, Managing Director and CEO, Indian Overseas Bank
The RBI MPC’s decision to keep the repo rate unchanged at 6.5 per cent is a positive move even though retail inflation continues to be above its target of 4 per cent. With the Indian economy showing signs of strong growth momentum and stability, the GDP growth projections marked at 7 per cent for FY25 is encouraging.
The ECBs and NRI deposits recording higher net inflows, and forex reserves marking at an all-time high of $645.6 billion, is also building a growth roadmap for the banking sector. Another positive development has been on RBI facilitating deposits of cash at CDMs using UPI as well as permitting use of third-party UPI apps for making UPI payments from PPI wallets. All these measures are going to further enhance customer convenience and boost adoption of digital payments.
Anu Aggarwal, President & Head Corporate Banking, Kotak Mahindra Bank
The monetary policy stance announced today reflects that the RBI is evenly balancing the two divergent objectives of growth and inflation. It seems a case of full commitment to growth with even higher commitment to inflation targets. I hope we will see sustained growth and softened inflation.
Alok Singh, Head – Treasury, CSB Bank
Monetary Policy stance has been in line with RBI guidance and market expectation. RBI has been watching global and local factors closely. It finds the risks evenly balanced. In our view, Growth and Inflation will be the key drivers of the policy stance going forward. We await the LCR paper which can have an impact on Bank’s liquidity.
Sarvjit Singh Samra, MD & CEO, Capital Small Finance Bank
In a landscape of stability, the decision by RBI to maintain the status quo on the repo rates unchanged underscores the need for strategic foresight and prudent management within the Banking sector. The decision to expand permissible rupee interest derivative products for small finance banks underscores the imperative for agility and proactive risk management. This will help the banking sector to enhance hedging strategies, fortify resilience and navigate market dynamics with confidence.
Sanjay Agarwal, Founder, MD & CEO, AU Small Finance Bank
RBI’s maintenance of status quo on the repo rate and the policy stance marked by ‘withdrawal of accommodation’ is a prudent decision amidst increasing geopolitical uncertainties and any adverse climate impact. Room for monetary policy easing could emerge in the coming months if inflation glides lower along the projected trajectory. Additionally, the flexibility allowed to SFBs to manage interest rate risk through use of permissible interest rate derivatives is a welcome step.
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