Banks and financial institutions welcome RBI's 'surprise' move to pause repo rate hike for now

The central bank has been raising the repo rate since May last year and has cumulatively hiked it by 2.5% to control inflation which has stayed above its comfort level of 6%.

The increase in benchmark lending rate resulted in EMIs for various loans such as home, car and personal loans going up.

While the banks and financial institutions have expressed surprise over RBI’s decision, as it was being widely expected that a further hike in repo rate would be announced on Thursday, the decision to not increase the key lending rate further has been lauded.

SBI Chairman Dinesh Khara said RBI's decision to pause the rate hike, for now, was a pleasant surprise given the market talks of one more final rate hike. “With uncertainty looming large, this decision was perfectly timed. Simultaneously, the bouquet of regulatory initiatives like linking UPI to credit and developing the onshore market will spur innovations in product offerings. The decision to enable tracing unclaimed deposits and strengthening of grievance redressal are customer-centric. Overall, RBI’s April policy guides the market in terms of expectations alignment.”

Federal Bank Group President & Chief Financial Officer Venkatraman Venkateswaran said, “The pause did come as a surprise as most economists had built-in a 25bps hike. This augurs well to continue the growth momentum as the central bank is playing a fine balance between managing inflation and ensuring growth is not impacted. Also, from consumers perspective further rate hikes would begin to hurt their repayment capacity. As mentioned by the Governor, it's a dynamic environment and they are prepared to act swiftly."

Tata Capital MD & CEO Rajiv Sabharwal said, “The market has already seen a 250 basis point increase in repo rates beginning in May 2022. Considering the turmoil in the Western economies and in India, no change in the repo rate is a good decision given the inflationary pressures.”

RBI’s decision will accelerate the growth momentum in the economy and will probably also allow firms to effectively stabilise their supply chains and operations. This showcases RBI’s commitment to support sustained economic activity given the inflationary pressures, he added.

Bandhan Mutual Fund’s Head of Fixed Income Suyash Choudhary said, “We think the rate cycle has peaked in India. It is likely that we are now in a period of long pause, unless there are near term further upward surprises to inflation. To elaborate upon this qualifier, we are reasonably confident that no further hikes are needed if one were to look at the likely evolution of growth-inflation dynamics over the next 6 – 12 months.

“Tighter credit conditions in the west will lead to weaker than earlier anticipated growth. This will continue to feed into India’s growth dynamics as well, alongside the cumulative impact of tightening done so far that is yet to be fully felt. With India having avoided any extra-ordinarily large fiscal stimulus over the Covid response period, it isn’t apparent why cyclical demand should stay as strong as it is currently (structural tailwinds are well documented including from balance sheet cleanups in India). For these reasons, we expect growth to be substantially shy of RBI’s current forecast for FY 24. If there are further upside manifestations to inflation in the immediate future, before the factors mentioned here have played out, then the last rate hike may very well come back on the table.

“However, this will eventually be splitting hair for medium-term bond investors. As mentioned multiple times before, we think investors should be overweight quality bonds in both a fixed income as well as a multi asset allocation context.”

Muthoot Finance MD George Alexander Muthoot said the RBI’s rate-setting panel’s decision to keep the repo rate unchanged to 6.50%, while keeping its stance on withdrawal of accommodation maintained was surprising.

“However, we are glad to witness the confidence posed by the RBI in the healthy growth showcased by the Indian banking and non-banking institutions. Further, positive indicative factors like higher rabi production brightening prospects about agriculture sector, positive rural demand, resilience in urban demand continue to boost our confidence that it will positively impact the gold loan demand in the country,” he said.

Vastu Housing Finance Head - Treasury and Corporate Affairs Satish Nair said, “After February’s hike of 25 basis points to 6.5 percent, we expected a pause in the hikes as inflation was expected to be range bound and to support economic growth. The housing sector is set on an upward growth trajectory; however, inflation needs to be watched. RBI's continued commitment to price, financial stability, and sustained growth will result in robust macro-economic growth.”

Bandhan Bank Chief Economist and Head of Research Siddhartha Sanyal said the RBI’s “surprise” pause on the repo rate in April is completely in line with our expectation. In fact, the 6-0 voting in favour of a pause is stronger than our expectation.

With the likely softening of CPI to low- to mid-5% levels in the coming month, the current repo rate of 6.5% implies that India’s real policy rate will hover around 1% during 2023-24, while maintaining a policy rate differential of about 1.5% with the US. This clearly helped the decision of a pause on the repo rate.

In the current EBLR regime of immediate and fuller pass through of repo rate hikes to lending rates, it is heartening to see a more balanced and nuanced approach from the MPC, he said.

“The material narrowing of trade and current account deficits and range-bound INR must have offered the MPC better comfort for pursuing a more ‘Fed-independent’ monetary policy,” he stated.

Basic Home Loan Founder and CEO Atul Monga said, “The decision to keep a pause on rate hike is positive for the housing market as it reduces the uncertainty and volatility associated with interest rate fluctuations. The home loan interest rates have gone up from 6.5 per cent to around 8.75 per cent with a series of rate hikes in the past and the move to pause will give a temporary reprieve and support the existing growth momentum in the real estate sector.

“It will therefore help boost the housing sales especially in the affordable and mid-housing segment and encourage more people to invest in residential properties, as they have a clearer picture of their borrowing costs and can plan their finances accordingly.

“It was important for the RBI to leave the policy rate at a level, which can be kept unchanged for a long time, as against hiking rates very aggressively now and building up pressure for cutting the same only in few months.”

Kotak Investment Advisors CEO-Investment & Strategy Lakshmi Iyer said, “RBI unexpectedly triggered a pause button on rates after 250 bps of reps rate increases. No change in stance means RBIs is preparedness to act if the need arises. While pause doesn’t mean pivot yet, global central banks actions will hold the key going forward. Bond yields after initial euphoria May look to oscillate basis demand-supply in upcoming auctions."