– Arista Menezes & Tanisha Khimavat
The RBI MPC unanimously decided to keep the repo rate unchanged at 6.5 per cent with preparedness to act should the situation warrant. It has raised its inflation projections for the current financial year to 5.4 per cent, while projecting the real GDP growth rate at 6.5 per cent.
The Bankers believe that it is a balanced policy and they expect the pause to be for some time unless data shows a different trend. They also highlighted that the MPC measures over the last few quarters have been effective in maintaining a tight leash on headline inflation while facilitating economic growth.
Here’s what top bankers said about the RBI’s policy decisions:
Mr. Dinesh Khara, Chairman, SBI:
“The RBI policy communication is nuanced and has rightly exercised caution and warranted vigil on the inflation trajectory given the current jump in vegetable prices. With capacity utilization currently running higher than the long-term trend, the central bank does have the bandwidth to look through the current increase in food prices. On the developmental front, the widening of options in payment systems, the creation of a digital public tech platform, and putting in place a transparent framework for EBLR are enabling provisions for the creation of an efficient and effective market microstructure.”
Shanti Ekambaram, Whole-Time Director, Kotak Mahindra Bank Ltd
In an unanimous decision the MPC kept the repo rates unchanged at 6.5% amid worries about global headwinds and domestic inflationary pressures arising out of elevated food prices. All high frequency data indicates resiliency in economic growth across segments resulting in MPC retaining the estimated growth of 6.5%. However, given the sharp hike in vegetable and cereals prices inflation trajectory for the year has been revised to 5.4% for the year as against 5.1% earlier. The central bank reiterated its inflation target of 4% and stayed committed to providing adequate liquidity to support growth . For now expect pause for some time unless data shows a different trend. Also global factors – rising crude and Fed’s stance could have a bearing on future rate action. The surplus liquidity in the system on account of government spending, return of ₹2000 banknotes to the banking system, strong capital flows resulted in temporary increase of CRR of 10% . Overall a balanced policy.
Suresh Khatanhar, DMD, IDBI Bank
“While global growth is expected to be muted this financial year it is encouraging that overall economic activity in the Indian context has been encouraging. The RBIs commitment to firmly focus on aligning inflation to the target of 4% signals a benign interest rate scenario going forward. The decision to increase incremental CRR is only intended to absorb the surplus liquidity generated by various factors and is a temporary measure for managing the liquidity overhang and is not likely to impact liquidity in the system. Overall, by keeping interest rates intact for the third straight time, the RBI has signaled that the economy benefits and continues to grow.”
Mr. Prashant Kumar, Managing Director and CEO, YES BANK
The RBI takes clear cognizance of the fact that excess liquidity in the system can pose risks to price stability and financial stability. The incremental CRR (ICRR) as a measure is targeted to absorb a portion of the excess liquidity that has likely built up due to forex flows, government spending and the withdrawal of Rs 2000/- currency notes from the economy. This measure also needs to be seen in the context that the market response to 14-day VRRR of the RBI was lukewarm. Our calculations indicate that for the retrospective period of May 19, 2023 to July 28, 2023, the banking sector will have to park an additional Rs. 1.1 trn of CRR with the RBI. The RBI has also set September 8, 2023 as a tentative date for the withdrawal of the measure, thereby ensuring that banking liquidity does not excessively tighten with the likely increase in the Currency In Circulation during the onset of the festive season.
Murali Ramakrishnan, MD & CEO of South Indian Bank
“RBI’s MPC’s measures over the last few quarters have been effective in maintaining a tight leash on headline inflation while facilitating economic growth. The Indian economy has responded by staying resilient in the face of heightened geo-political uncertainties and a volatile international demand-supply equation. To sustain the momentum, the MPC has, for the third successive quarter, rightly maintained status quo in the policy rates. We concur with it and the retention of the ‘Withdrawal of Accommodation’ stance. Similarly, repo rate unchanged will further ensure that inflation progressively aligns with the target, while supporting growth.”
