The Views on RBI MPC from Finance Industry Stalwarts

On Friday, Reserve Bank of India (RBI) Governor Shaktikanta Das revealed several important decisions made during the recent three-day meeting of the central bank's Monetary Policy Committee (MPC). This was the MPC's final meeting of the year, following the one in October, with the next meeting scheduled for February.

1) Abhishek Pandya, Research Analyst, StoxBox

In its December monetary policy meeting, the RBI was cautious on the growth outlook, with expectations of inflation cooling off going ahead on the back of a drop in vegetable prices. Though the RBI has taken the first step of pumping in sustained liquidity into the system through the CRR cut, we believe that a repo rate cut would have been a more appropriate measure to tackle a drastic 60 bps reduction in FY25 GDP forecast. Our sense is that the central bank was wary to initiate the rate cut as it would have been counter-productive to its fight to arrest the sticky inflation and the central bank saw some early signs of revival in the economy during the first two months of Q3FY25. We expect the RBI to initiate a 25 bps rate cut in the February 2025 policy meeting, with further room for a downward revision to GDP forecast.

2) BHAVIK THAKKAR, CEO Abans Investment Managers

While RBI policy today on Repo rate  status quo and CRR cut of 50 bps has been on expected lines, RBI has increased the ceiling for offering FCNR (b) deposits (where NRIs can hold foreign currency deposits in India) by around 150 bps. This suggests that RBI is thinking of strengthening $ against ₹. In the last few weeks, appreciation in $ has resulted in weakening of ₹ (and also other major currencies) wherein RBI intervenes by selling $ and buying ₹ to maintain demand for ₹. This results in lower forex reserves. Today’s step of increasing the ceiling for FNCR deposits (means higher interest rates for foreign currency deposits) makes us think that RBI expects continuous actions particularly from the USA which can strengthen the $.

3) Jigar Trivedi, Senior Analyst,Reliance Securities

In line with the forecast, the Reserve bank of India left its benchmark interest rate unchanged, amid continued inflationary pressures even though economic growth slumped. The RBI’s monetary policy committee voted four-to-two to keep the repurchase rate at 6.5% on Friday. “MPC believes only with durable price stability can strong foundations be secured for high growth,” Governor Shaktikanta Das said in a live streamed address in Mumbai. The Reserve Bank of India's rate-setting panel has lowered India’s FY25 GDP growth forecast to 6.6% from 7.2%. India’s inflation has remained well above the RBI’s 4% target aim, with price gains accelerating to a 14-month high of 6.21% in October. Das had previously said a rate cut at this stage would be “very risky” and he was in no hurry to join the wave of easing by global policymakers.  The central bank has kept the rates unchanged for almost two years now, but calls for easing are growing louder after a sharper-than-anticipated dip in the July-September period economic growth to 5.4%. We are of the opinion that there will be a rate cut at the February policy meet.

4) Nishant Srivastava CEO Torus Wealth

The RBI's decision to hold the repo rate at 6.5% signals a firm stance on inflation control, even as GDP growth forecasts for FY24 are trimmed to 6.3%. I feel the 50 bps CRR cut is set to inject ₹1 lakh crore into the banking system, bolstering liquidity.  While equity flows may remain cautious shorter, the additional liquidity could drive optimism in key sectors as markets anticipate a potential rate cut in early 2024.

5) Mayank Joshipura, Vice Dean, Research & Ph.D. Programme, Professor (Finance), NMIMS

The 2nd quarter GDP growth of 5.4% signals widespread slowdown and that needs to be addressed by bold moves. Today, RBI has tried to improve banking system liquidity by cutting CRR by 0.5%. However only the repo rate cut going forward will bring down the cost of borrowing and EMIs and boost  consumption and arrest the economic slowdown. Maybe better core inflation numbers going forward would allow the central bank to take measures that can put the economy back to high growth trajectory.

6) Dr. Niranjan Shastri, Associate Professor (Finance) at SBM - SVKM’s NMIMS

The Indian economy is facing the challenge of inflation on one hand and slow down signals on another hand. The RBI's decision to maintain the repo rate at 6.5% is a cautious approach considering signs of growing food inflation. However, to infuse more liquidity and thereby giving a push to growth is done through announcement of reduction in CRR in two tranches. While the rate hike pause aims to support economic growth, the focus remains on controlling inflation. The reduction in CRR will inject liquidity, potentially boosting credit and economic activity.

7) Dr. Bharath Supra, Associate Professor – Finance & Programme Chairperson, School of Business Management, NMIMS Navi Mumbai

The RBI's decision to hold the repo rate same for the eleventh consecutive meeting shows a consistent posture among conflicting signals from its overseas counterparts, reflecting its confidence in its current monetary policy framework to control inflation and promote development. Crucially, the RBI kept its flexibility by adopting a neutral posture, which enables it to react dynamically to changing macroeconomic conditions without assuring any direction. Fascinatingly, reducing the CRR puts an expected ₹1.3 – 1.5 lakh crore into the banking system; Particularly as the economy moves into the peak consumption and investment cycle, this action seeks to improve liquidity to help credit expansion.