KEY HIGHLIGHTS
CRISIL Expects RBI To Cut Rates Starting October, Lowers Rate Cut Expectations
CRISIL anticipates rate cuts from the RBI starting October, while revising down rate cut expectations.
"We now see the RBI cutting rates starting October and have lowered our expectation to two rate cuts against three foreseen earlier," CRISIL's Chief Economist Dharmakirti Joshi said.
Don't Expect Systemic Impact On Account Of Change In Bulk Deposit Limit, Says RBI Deputy Governor
RBI Deputy Governor DG Swaminathan reassured that the recent revision in bulk deposit thresholds will not have a systemic impact.
Swaminathan highlighted:
Bulk deposit revision is a routine review that we do.
The change in bulk deposit threshold is in line with the current times.
The bulk deposit change aims to enhance asset-liability management for banks.
The cost of deposits of bulk deposits is purely entity dependent.
Don't expect systemic impact on account of change in bulk deposit limit.
Problem Arises From Banks' End, Says Das On UPI Downtime
Governor Das addressed the UPI downtime issue, stating that the problem stems from banks' end rather than UPI or NPCI. He added that the central bank is addressing the issue.
Even If The Fed Eases, We May Not: Das
RBI Governor Das asserted the independence of India's monetary policy, particularly in response to speculations surrounding the actions of the US Federal Reserve.
"Even if US Fed eases, we may not," Governor Das asserted.
"While we do consider the impact of monetary policy in advanced economies on Indian markets, our actions are primarily determined by domestic growth-inflation conditions and the outlook," Das had said in his speech earlier in the day.
RBI Officials Offer Insights On Economic Growth Outlook
RBI Deputy Governor DG Swaminathan highlighted the following points:
FY25 GDP Growth is projected to be lower than FY24, although momentum remains robust.
The lower GDP growth projection for FY25 is attributed to the high base effect from the previous fiscal year.
Swaminathan reassured that there are currently no signs of overheating in the economy.
RBI Governor Shaktikanta Das said:
The growth outlook appears promising, with sustained momentum in economic activity.
Das reiterated the RBI's proactive stance, stating that the central bank remains agile and attentive to incoming data.
If necessary, further measures will be taken to support the economy.
RBI Deputy Governor Emphasises Vigilance On Economic Data
RBI Deputy Governor DG Swaminathan highlighted the central bank's vigilant approach towards monitoring incoming economic data.
All future measures would be contingent upon the information derived from the data, Swaminathan said ina Press briefing.
Swaminathan reassured the public that the RBI remains agile and attentive, ready to respond accordingly to any emerging trends or challenges. He affirmed that if deemed necessary, additional measures would be promptly implemented to address evolving economic conditions.
Seeing 'High And Unsurious' Interest Rates in MFIs and NBFCs, Das Says
The interest rates on small-value loans in some MFIs and NBFCs are 'high and appear usurious', Das said.
"It has been observed that in some MFIs and NBFCs, interest rates on small-value loans are high and appear to be usurious," he said, adding, "The central bank continues its constructive engagements with such financial entities to safeguard the interests of customers and ensure overall financial stability."
RBI To Introduce Auto Replenishment Of UPI Lite Wallet, Das Says
RBI will soon introduce the auto-replenishment feature in UPI Lite wallet, Das said, adding that it had been proposed to include UPI Lite under the e-mandate framework.
This would ensure that customers have a facility to automatically replenish their wallet if their balance goes below a threshold, he said, adding that it would also promote the ease of making small-value digital payments.
Expect 6-9 Months for Rate Cut, Says CBS Bank's Alok Singh
CBS Bank's Alok Singh expects that it would require another six-to-nine months for rate cuts, he told NDTV Profit in an interaction.
Key highlights from the conversation:
MPC's policy seems to hawkish, that's why markets are reacting the way there are
It is good policy stance was continued
Growth is moderating from the present year
4.5% inflation expectation is close to targeted level
Does not expect rate cuts given situation currently
10-year rate is pressing spread down significantly
Need To Create Room To Change Rates, HDFC Bank's Abheek Burua Says
RBI needs to create a space to change interest rates, HDFC Bank's Abheek Burua said while noting that Das adequately covered anticipated topics during his address.
Burua, however, emphasised the imperative of creating space for potential rate adjustments. He suggested that the influence of the US Federal Reserve may extend beyond official statements, potentially impacting monetary policy decisions.
Additionally, Burua highlighted the potential impact of softening food prices, which could prompt the RBI to reconsider its stance on rates. He noted that if currency stability is a central objective, there is a national inclination to align with the Fed's rate.
Despite these considerations, Burua did not rule out the possibility of a rate cut before the US Federal Reserve's decision, although he assessed this scenario as having a low probability.
Split MPC Votes Signal Possible Policy Pivot, Kotak Mahindra's Upasna Bhardwaj Says
The split In MPC Voting Patterns indicates potential policy pivot, notes Kotak Mahindra Bank's Chief Economist Upasna Bhardwaj.
"We believe the robust growth will give enough opportunity for the MPC to remain on a wait and watch mode until better clarity comes from monsoons and quality of expenditure from the Budget," Bhardwaj said, adding that she sees room for stance change in the August policy with a plausible easing from October meeting.
RBI To Issue Draft On New FEMA Guidelines Soon, Das Says
RBI intends to issue a new draft concerning the Foreign Exchange Management Act soon, Das said.
He elaborated that the proposal involves the rationalisation of FEMA guidelines regarding the export and import of goods and services.
Furthermore, Das highlighted that the adjustment in FEMA guidelines aims to enhance ease of doing business and offer increased operational flexibility to authorised dealer banks.
RBI Governor Das Advocates Vigilance Amidst Global Uncertainty
RBI Governor Shaktikanta Das expressed optimism about India's readiness to embark on a new era of transformation, noting the country's strong fundamentals despite the series of crises the world has faced in recent years.
Das underscored the importance of remaining vigilant in an uncertain global environment, acknowledging the resilience of the Indian economy amidst various challenges. He emphasised the need for continuous monitoring and adaptation to navigate through potential risks and uncertainties on the global stage.
Headline CPI Softened Further, But Food Inflation Reversed Gains, Das Says
RBI Governor Shaktikanta Das noted that while the headline CPI has softened further, there has been a reversal in food inflation gains. This softening has been juxtaposed with a notable uptick in vegetable prices, attributed to an exceptionally hot summer.
Additionally, Das highlighted a deflationary trend in fuel prices, primarily driven by cuts in LPG prices.
Looking ahead, Das expressed optimism about the strengthening of agricultural activity, anticipating that this would boost rural consumption. Furthermore, he suggested that external demand could receive a significant boost from the improving prospects of global trade.
Will Continue To Be Nimble And Flexible On Liquidity Management, Das Says
The RBI will continue to remain nimble and flexible on liquidity management and modulate frictional and durable liquidity so that money market rates evolve to preserve stability and orderliness, Shaktikanta Das said.
FY25 Inflation Retained At 4.5%, Das Says
The inflation for the ongoing fiscal was retained at 4.5% with headline CPI softening further, albeit with a reversal in food inflation gains, Das said.
Vegetable prices are experiencing an uptick due to an exceptionally hot summer, while the fuel prices exhibit a deflationary trend primarily driven by LPG price cuts, Das said, adding that the anticipations suggest a correction in headline inflation during the second quarter of the fiscal 2025.
Yet, this drop is expected to be temporary and likely to reverse soon after, he said.
RBI Lifts FY25 GDP Growth Forecast To 7.2% From 7% Earlier
The Reserve Bank of India has lifted the real GDP growth forecast for the ongoing fiscal to 7.2% from 7% earlier, Governor Shaktikanta Das said.
The central bank sees GDP growth for the first, second, third and fourth quarter of the current fiscal at 7.3%, 7.2%, 7.3% and 7.2% respectively, das said.
During its April MPC meeting, the central bank projected real GDP growth of 7% in the previous fiscal year. For the ongoing fiscal year, it estimated growth rates of 6.7%, 6.5%, and 6.4% for the first, second, and third quarters, respectively.
Rupee Remain Unchanged
The Indian rupee and the yield on the 10-year note remain unchanged. The local currency was trading at 83.47 against the US dollar.
MPC Keeps Repo Rate Unchanged At 6.5%
The Monetary Policy Committee (MPC) has decided to maintain the repo rate at 6.5% for the eighth consecutive time.
Out of the six MPC members, four voted in favor of maintaining the policy repo rate. The MPC has chosen to uphold its monetary policy stance at 'withdrawal of accommodation'.
What RBI Had Projected Inflation, GDP In April MPC Meet
During its April MPC meeting, the central bank projected real GDP growth of 7% in the previous fiscal year. For the ongoing fiscal year, it estimated growth rates of 6.7%, 6.5%, and 6.4% for the first, second, and third quarters, respectively.
Regarding the fiscal deficit, the RBI forecasted retail inflation, measured by CPI, at 5.2% for the first quarter of the current fiscal year during its April MPC meeting.
Sensex, Nifty Open Little Changed
Indian equity benchmarks opened little changed ahead of the MPC decision.
The S&P BSE Sensex and the NSE Nifty 50 opened at 75,031.79 and 22,821.85 respectively.
Money Market Update: Rupee, Bonds Unchanged At Open At of MPC Decision
The Indian Rupee and bonds remained steady on Friday before the MPC decision. The local currency started at 83.47 against the US dollar, unchanged from Thursday's closure. Meanwhile, the yield on the 10-year note began at 7%, a basis point lower than Thursday's closing rate of 7.01%.
Banking Liquidity: To Ease?
India's interbank liquidity has been somewhat of a hindrance for markets, given its tight nature, according to Nomura.
The government attempted to address this via buybacks and with a slower T-bill calendar. The bumper RBI dividend has also brought liquidity back to focus, the brokerage said.
"We are turning more positive on the outlook for liquidity over coming weeks, largely on account of FX inflows, government redemptions, and coupon payments."
FY24 Fiscal Deficit At A Glance
The Union government's fiscal deficit expanded to 95.3% of the budgetary target for the financial year ending March 2024.
In actual terms, the fiscal deficit is Rs 16.54 lakh crore of the total limit set at Rs 17.34 lakh crore,. This brings the government's fiscal deficit for FY24 to Rs 16.53 lakh crore, which is 5.63% of GDP, slightly better than the 5.8% estimated in the budget, according to provisional data released on Friday by the Controller General of Accounts.
FY24, Q4 GDP - A Review
Economic growth surpassed expectations in the fourth quarter of fiscal 2024 and for the entire fiscal year, primarily driven by industry expansion and increased capital expenditure.
The government's statistical office reported a GDP growth of 7.8% in the January-March quarter, exceeding previous estimates. During this period, gross value added, excluding indirect tax and subsidies, increased by 6.3%.
For the entire fiscal year, GDP is estimated to have expanded by 8.2%.
Economists surveyed by Bloomberg had anticipated a 7% GDP growth in the fourth quarter, with GVA growth projected at 6.2%.
For the full fiscal year, economists in the Bloomberg poll estimated GDP growth at 7%.
CPI Inflation
Consumer inflation decreased to its lowest point in 11 months. However, elevated food prices in the midst of a hot summer make it difficult for the Reserve Bank of India to reduce the benchmark repo rate.
The Consumer Price Index indicated a 4.83% increase compared to the previous year in April, slightly lower than March's 4.85%, as per data from the Ministry of Statistics and Programme Implementation released on Monday.
RBI February Monetary Policy: A Preview
India's Monetary Policy Committee is anticipated to maintain the status quo on the Reserve Bank of India's key lending rate amid the ongoing efforts to reduce inflation, despite robust economic activity.
All economists surveyed by Bloomberg anticipate the MPC to retain the RBI's repo rate at 6.5% during its upcoming meeting on Friday.
Since the previous policy announcement in February, the MPC will assess several factors including moderating inflation, strong economic activity, onset of monsoon, international oil prices, and global geopolitical developments.
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