New Delhi: Industry body FICCI has welcomed the decision of Reserve Bank of India (RBI) to keep the repo rate unchanged at its Monetary Policy Committee (MPC) meeting held in Mumbai on Thursday, adding that the Indian economy is showing signs of resilience with growth being broad based.

Subhrakant Panda, President, FICCI, said: “The pause in policy repo rate by RBI is a welcome move given the evolving macro-economic and financial markets scenario. The renewed phase of turbulence that Central Banks are grappling with globally given developments in the banking sector, geo-politics and slowdown in growth and trade flows warranted a prudent response which RBI has delivered.”

“While the Indian economy is showing signs of resilience with growth being broad based, the outlook globally is somewhat uncertain. RBI’s measured stance articulated today is appropriate as earlier rate hikes are still flowing through the system, and inflation is projected to trend downwards, albeit slowly; any further hike in the policy rate at this juncture would have affected growth, which must be the priority while keeping a close watch on the inflation trajectory,” added Panda.

Dharmakirti Joshi, Chief Economist, CRISIL, said: “The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) surprised by keeping policy rates unchanged, while keeping options open on future rate actions and maintaining stance of withdrawal of accommodation. In an environment of volatile global developments and tight financial conditions, the RBI will remain data-dependent on setting rates. It will also now want to carefully evaluate the consequences of a cumulative 250 bps rate hike since May 2022, which has been the fastest pace of hikes in the past decade.”

Joshi said that monetary policy typically impacts the real economy with a lag of 3-4 quarters, and the full impact is expected to slow growth and moderate inflation in fiscal 2024. The RBI is likely to respond by cutting rates towards the end of fiscal 2024, he added.

The RBI believes inflation will fall within its target in the current fiscal year, driven by healthy Rabi crop, normal monsoon and moderating international commodity prices. However, it stated its readiness to fight any unexpected rise in inflation.

“Tightening financial conditions — due to rate hikes and banking sector stress — will slow growth in the US and Europe. Yet, rates are expected to remain higher for longer as inflation persists above target,” he said.

S&P Global expects the Fed to cut only from mid-2024, and end at 4 per cent by the end this year. This could keep external financing conditions challenging for emerging markets like India in 2023.

Mahendra Jajoo, CIO, Fixed Income, Mirae Asset Investment Managers, said that taking note of the recent developments in global markets, including the banking system disruptions in the US, that are expected to result in a pivot in monetary policy globally, the MPC has kept the key policy rates unchanged.

“Even as the inflation remains on the higher side, the impact of the recent fast-paced rate hikes in moderating future inflation trajectory needs to be assessed before further action, especially as the inflation is now projected to moderate to 5.2 per cent in FY24,” added Jajoo.

He said that this turned out to be a pleasant surprise to market participants where the near consensus was for a 25bps hike. Traders rejoiced with bond yields easing by about 10bps immediately after the policy announcement. Growth projections for FY 2024 have been increased by 10 bps from 6.4 per cent to 6.5 per cent and inflation projections reduced by 10 bps from 5.3 per cent to 5.2 per cent.

Markets are likely to remain positively biased with bond yields likely to remain range bound, after having already come down by 25-30 bps from the recent highs. Long term rates are likely to have peaked in the current cycle and the duration funds are expected to start showing improved performance in coming months, said Jajoo further. /BI/