RBI Monetary Policy: What market experts are saying

#markets, #monetary policy committee, #RBI, #RBI monetary policy, #RBI policy, key lending repo rate at 4 percent , Union Budget

RBI Monetary Policy: Impact on markets

The Monetary Policy Committee on December 8 retained the key lending repo rate at 4 percent for the ninth consecutive session, in line with what the market was expecting amid growing uncertainty because of the Omicron virus.

The rate-setting panel of the Reserve Bank of India also maintained its accommodative stance until there was sustained economic recovery.

After the announcement by Governor Shaktikanta Das, markets remained upbeat and hit the day’s high, led by financials, information technology and real estate sectors.

Let’s check out what market experts feel about the outcome of the Monetary Policy meeting.

Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services

Overall, there were no surprises in the policy today and it was broadly a non-event. Going forward, we fear that the real GDP growth could be lower than the RBI projections, with inflation falling broadly in line. Along with the rising threat from the Omicron variant, there is a possibility that a hike in reverse repo could be postponed to April 2022.

However, if growth turns out to be better than our expectations (or in line with/better than RBI projections) and the Omicron threat doesn’t materialise, a 15-bps hike in the reverse repo rate in February cannot be ruled out. The Union Budget will also play an important role in the next MPC meet.

Also read: RBI Monetary Policy: Economy not yet strong enough for self-sustaining, needs policy support, says Shaktikanta Das

VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services

The MPC has again taken a decision in favour of growth by continuing with accommodative monetary stance and status quo in rates. More importantly, the guidance is also dovish with no indications of rate hikes in the immediate future. The CPI inflation projection for Q3 and Q4 of FY22 at 5.1 percent and 5.7 percent, respectively, is an indication of the RBI’s belief that higher food inflation is temporary since it is caused by crop damages during unseasonal rains. Also, the central bank believes that lower crude prices and reduced petrol and diesel prices will “mitigate the cost push build-up”. Thus, a pro-growth policy and very positive from the market perspective.

Also read: RBI Monetary Policy: CPI inflation projected at 5.3% in 2021-22, says Shaktikanta Das

Upasna Bhardwaj, Senior Economist, Kotak Mahindra Bank

The MPC expectedly maintained status quo on the policy rates and stance. The rhetoric, too, has remained focused on maintaining durable growth as long as inflation remains well in check. We continue to expect the RBI to fine tune the surplus liquidity to manage rates and consequently provide guidance on the operating target rate shifting closer to the repo rate. We retain our base case of reverse repo rate hike in February.

Abhay Agarwal, Founder, Piper Serica

The RBI has maintained its policy of ‘first do no harm’, kept its stance accommodative, and kept its liquidity management options open. Clearly, the RBI’s focus is on making sure that the nascent post-COVID recovery is resilient and not just short-lived. So, it is quite sensibly pursuing flexible inflation targeting to ensure a ‘soft-landing’ rather than a hard one.

Overall, we expect that stock markets will be relieved that there are no negative surprises. The recent fragile recovery in consumer discretionary space like real estate and automobiles is expected to continue as there is greater certainty on borrowing costs and EMIs that drive consumer decisions.

The short-term funds are expected to yield slightly higher returns now. The fixed-income investors should continue to stay in the shorter duration funds as the long-term funds may see a price erosion in case of an increase in the long-term G-Sec rates.

Also read: RBI Monetary Policy: UPI cap on IPO, gilt investments raised to Rs 5 lakh

Raghvendra Nath, MD, Ladderup Wealth Management

On the expected lines, the RBI has continued with its accommodative stance which, we believe, is the right decision. Easy monetary policy and low interest rates shall play a crucial role in reviving demand and kick-start the capex cycle. Moreover, inflation is not a big worry right now as most of the recent spike in inflation was caused due to higher commodity prices that are driven by international factors.

The fear of coronavirus derailing the economy once again is real and highly probable. Such times require high degree of monetary and fiscal support, and the RBI is rightly dealing with it through its easy policy.

Sonam Srivastava, Founder, Wright Research

The markets will cheer the policy as it is accommodating to growth, and the country’s inflation expectation analysis remains positive. This is in line with the expectations of the markets and thus, positive sentiment is likely to bolster growth in sectors such as banking, real estate, export-import and manufacturing.

The stock prices of companies in these domains are likely to see a rise in price. It is indeed a great time for investors to be invested in the market.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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