RBI MPC keeps repo rate unchanged, raises FY24 growth forecast to 7%; Industry reacts

In its bi-annual policy announcement, RBI Governor Shaktikanta Das said the decision was unanimous.

Das said RBI decided to continue the "withdrawal of accommodation" stance in the December review meeting with a majority of 5-1.

Consequently, the standing deposit facility (SDF) rate remains at 6.25%, and the marginal standing facility (MSF) rate and the bank rate are at 6.75%, he said.

Deliberating the policy stance, the RBI Governor said, the MPC’s decision was driven by declining inflation. He, however, warned that uncertainty looms over the near-term forecast due to food inflation, which may push the headline inflation figures upwards in November and December.

In today's statement, Das said that the real GDP growth for 2023-24 is projected at 7% from 6.5% earlier. Q3FY24 GDP growth forecast is projected at 6.5% against the estimate of 6% earlier. Q4FY24 GDP growth forecast is projected at 6% against the earlier estimate of 5.7%.

Das said that the Indian economy presents a picture of resilience and momentum. He adds that fundamentals remain strong.

The Reserve Bank of India (RBI) also raised the Unified Payments Interface (UPI) transaction limit for hospitals and educational institutions to Rs 5 lakh from the extant Rs 1 lakh.

Reacting to RBI MPC’s decision, State Bank of India Chairman Dinesh Khara said, “The RBI policy announcement is a clear affirmation that the Indian economy is poised for a stable inflation and high growth regime with the possibility of growth breaching 7% for the 3rd successive year.”

The measures regarding liquidity will facilitate better fund management by banks, he added.

“The enhancement of limits under UPI for education and healthcare will ensure that UPI truly emerges as a public good. Furthermore, moving towards a unified regulatory framework for connected lending and a regulatory framework for web-aggregation of loan products will ensure better pricing, transparency, and enhanced customer centricity,” he said.

RBL Bank Economist Achala Jethmalani said the policy outcome remains favourable.

According to Jethmalani, RBI’s status quo in policy comes on the back of improved economic growth prospects without posing significant upside risks to the inflation trajectory.

“The status-quo on liquidity approach and no fresh regulations on lending activity is reflective of the Reserve Banks’ positive outlook on both price stability and financial sector stability. This is a good policy as it favours business continuity. We see the Repo rate at 6.50% with nimble approach on liquidity management continuing till March 2024,” she stated.

Bandhan Bank Chief Economist Siddhartha Sanyal said RBI’s decision was expected, adding that the narrative on growth and inflation dynamics was a balanced and pragmatic one.

“It is heartening to see upward revision in growth expectation from the RBI, especially given stronger confidence on further broad-basing of domestic growth momentum,” he underscored.

“The RBI continues to keep all options open in order to manage liquidity as and when required. Today’s communication also underscores the central bank’s intent to remain proactive in assessing and mitigating brewing risks on all fronts,” Sanyal stated.

Shriram Finance Executive Vice Chairman Umesh Revankar believes a regime of reduced rates is just around the corner.

“Some steps on the anvil as announced by the Governor, including a repository for Fintechs, and a regulatory framework for loan web aggregation and connected lending are progressive steps. It can dispel the dark clouds of suspicion hanging over digital lending in recent times. We see great promise for buoyant economic activity and consequently, growth in commercial and retail credit in the near future,” he added.

PNB Housing Finance MD&CEO Girish Kousgi said the GDP growth projection for FY24 to 7% from the earlier 6.5% will help maintain the ongoing economic momentum.

“The emphasis on supporting housing consumption via urban and rural demand augurs well, providing a boost to the real estate segment. The focus on data security through the proposed cloud facility for financial institutions is also laudable and will help strengthen consumer trust and confidence. Further, the regulatory framework for web aggregation will create a more level playing field for all entities vis-à-vis loan processes, thereby ensuring an unwavering focus on customer centricity,” he said.

Essar Ports MD & CEO Rajiv Agarwal said RBI’s decision emphasises a cautious decision to maintain the policy repo rate at 6.50 percent.

According to Agarwal, “The upward revision of the real GDP growth forecast to 7 percent for 2023-24 from 6.5 percent shows the buoyancy in the Indian economy. With the taming of inflation, we expect a reduction in the interest rates in the coming quarters which will further push the growth rate.”

IDBI Bank Deputy Managing Director Suresh Khatanhar the Indian economy is showing resilience with GDP growth for Q2 having exceeded forecasts, which is a good sign of a sustainable growth momentum.

As fundamentals of the economy remain strong with banks and corporates reporting healthier balance sheets and fiscal consolidation on course, the external balance with strong forex reserves provides a cushion against external shocks.

“A broad-based easing in core inflation certainly points towards past monetary actions yielding desired results. Domestic economic activity is holding up well as assessed by the RBI and the MPC remains alert and prepared to undertake appropriate policy actions as warranted – this provides a good sense of linear growth across sectors for the remaining part of the financial year,” he said.