RBI Rate Hike: A Quick Snapshot Of All You Need To Know And Expert Reactions
Reserve Bank of India (RBI) has increased the repo rate for 2nd consecutive time today. The highlights of the decision and reactions from experts
- RBI hikes key interest rate (repo) by 25 bps to 6.5 per cent
- It is 2nd consecutive hike in short-term lending rate
- Consequently, reverse repo rate stands at 6.25 pc
- New marginal standing facility rate is 6.75 pc
- Monetary policy stance to remain neutral
- GDP growth seen at 7.5-7.6 per cent for April-September period;
- GDP growth projection retained at 7.4 pc for 2018-19;
- Retail inflation pegged at 4.8 pc for second half of current fiscal;
- 5 MPC members voted in favour of rate hike, one against
- Next 3-day MPC meeting from Oct 3;
- 4th bi-monthly monetary policy statement on Oct 5;
- The stock market came down from record high following the decision. Bank stocks dragged.
- RBI to make minutes of today's meeting public on Aug 16
Rajiv Shastri, ED & CEO Essel Mutual Fund
The policy decision to hike rates reflects the uncertainty regarding inflation that seems to be on the top of the RBI's mind. Apart from the fact that robust domestic demand has resulted in sustained core inflation, there is considerable uncertainty regarding the fallout of oil cartelization and trade wars. With the Chinese currency depreciating and exerting a downward pressure on the INR and other export-oriented currencies, imported inflation is a potential threat as well.
Killol Pandya, Head, Fixed Income, Essel Mutual Fund
RBI MPC seems to have signalled its concerns by hiking rates twice in a row. From the market perspective, this policy may be considered to be neutral with hawkish undertones. RBI MPC seems confident that economic recovery (including rural and urban consumption) seems to be on a ‘firm footing’. It seems satisfied with the robust capital markets despite acknowledging a reduction in FDI and FII flows into EMs (including India)
RBI MPC observed liquidity to be broadly neutral in the past few months and continues to seek to maintain a systemically neutral liquidity. RBI MPC stated its rising concerns about uncertainties relating to inflation. RBI was also concerned about hardening inflationary expectations, the actualization of the full range of impact of MSP increase (primary and 2nd round impact) on inflation, fiscal slippage concerns and rising input costs.
RBI continues to be worried about INR depreciation, persistence in Core CPI (i.e. – non food, non fuel inflation), the impact of firmer crude oil prices on CPI, trade wars & protectionism (in the global geo-political context). However, it hoped that improving GST collections and softening global commodity prices may assuage inflation pressures.
Overall, the policy was reasonably cautious from the bond market perspective. We have been espousing a case for maintaining lower duration and believe this policy validates our concerns. While we do not rule out trading opportunities, we are also not expecting an incremental change in our investment strategy or interest rate outlook on the basis of this policy. We reiterate our case for investors opting for Accrual based products for now.