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What does RBI’s decision to maintain Repo rate mean? Experts explain

RBI keeps repo rate unchanged at 6.5 per cent, focuses on withdrawal of accommodation.

The Reserve Bank’s decision to hold benchmark interest rate is on expected lines, and its focus on withdrawal of accommodative monetary stance will help in bringing down inflation while supporting growth, according to industry experts.

The Central Bank left its key interest rate unchanged as inflation remains a major risk, and signalled it would keep liquidity tight using bond sales to bring prices closer to target.

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The monetary policy committee held the benchmark repurchase rate (repo) at 6.50 per cent in a unanimous decision for the fourth consecutive meeting in a row. It retained the ‘withdrawal of accommodation’ stance.

Commenting on the monetary policy, Subhrakant Panda, President, Ficci said the RBI has kept repo rate and overall stance unchanged, as was largely expected, emphasising on withdrawal of accommodation and supporting growth.

“Inflation needs to be closely monitored, but it seems to have peaked and a correction in prices over the near-term looks probable,” he said.

Echoing similar sentiments, Madan Sabnavis, Chief Economist, Bank of Baroda said the policy was on expected lines and message appears to be that status quo will prevail till end of the fiscal.

“This is based on inflation forecasts which remain almost unchanged,” he said, adding that the earliest time when repo can be lowered is expected to be towards the end of the first quarter of next year.

ALSO READ- RBI Monetary Policy: Repo rate unchanged. Should investors wait or book FDs?

The Reserve Bank has retained the retail inflation projection at 5.4 per cent for the current fiscal.

On the RBI’s latest decision, Rajeev Kapur, Managing Director, Steelbird Helmets said a stable repo rate is a boon for the economy during this festive time, as it translates into more spending power for the people.

“It fosters a sense of financial security, encouraging consumers to make confident purchasing decisions,” he added.

According to the RBI, domestic demand conditions are expected to benefit from the sustained buoyancy in services, revival in rural demand, consumer and business optimism, the government’s thrust on capex, and healthy balance sheets of banks and corporates.

Headwinds from global factors like geopolitical tensions, volatile financial markets and energy prices, and climate shocks pose risks to the growth outlook.

Ayush Lohia, CEO of Lohia Auto Industries said RBI’s decision provides a sense of stability in the broader economic landscape.

For the EV industry, he said steady interest rates can positively impact the affordability and financing of electric vehicles, encouraging more consumers to make the switch to cleaner transportation options.

Shrinivas Rao, CEO of Vestian said despite headline inflation being out of the central bank’s comfort zone in July and August 2023, it maintained status quo and kept repo rate unchanged.

“This move showcases RBI’s confidence in the market and anticipation of moderating headline inflation in the future. We anticipate both real estate demand and supply to sustain its ongoing momentum on the back of stable market conditions,” he said.

According to executive chairman of Andromeda loans and Apnapaisa.com V Swaminathan, the demand for housing has remained resilient and so has the demand for housing-loans.

“The status quo means that demand for home loans will continue to grow at a faster pace and with the festive season around the corner, we expect demand for home loans as well as car loans at record levels during October – December 2023,” he said.

Suvodeep Rakshit, senior economist, Kotak Institutional Equities said the RBI has explicitly highlighted the need to use OMO sales to modulate liquidity.

“This will weigh down bond markets’ sentiments. Concerns on food inflation were highlighted which can impart upside to headline inflation,” Rakshit said, and added that global monetary conditions will also weigh on RBI’s policy decisions.

Amit Sarin, managing director, Anant Raj Ltd welcomed the Reserve Bank’s move and said this will help in the sustained recovery in economic growth which the country is witnessing.

“Needless to say, the housing and the real estate sector stand to benefit from the decision. The demand for residential dwellings is expected to remain robust in the coming quarters,” he said.

In the views of Rohit Arora, CEO and co-founder, Biz2Credit and Biz2X, the RBI’s decision to hold the repo rate steady showcases a strategic and balanced approach to India’s economic trajectory.

It is a clear indication that the regulators are in sync with market dynamics, paving the way for Fintechs in India to innovate, expand, and contribute more significantly to the nation’s financial inclusivity,” he said.

Commenting on the monetary policy, Rajiv Agarwal, MD and CEO of Essar Ports opined that the decision to maintain the repo rate unchanged for the fourth consecutive time reflects RBI’s prudent approach in sustaining economic equilibrium, while the 5.4 per cent inflation outlook underscores its dedication to price stability.

The Reserve Bank will announce the next bi-monthly monetary policy on December 8.

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