After a volatile week, all eyes on RBI’s Monetary Policy meeting! But experts expect no change in repo rate
Jun 6, 2024, 17:39 IST
After the exit polls predicted a landslide victory for the BJP-led NDA over the weekend, Sensex gained over 2,000 points on Monday. However, the actual results the next day turned out to be a rude shock for the investors hoping for a stable government and policy continuity. By Tuesday noon, Sensex shed over 5,000 points as it became clear that there will be a government based on alliance at the centre.
Since then, the markets have slowly recovered and are back in the green again. But now all eyes are on the ongoing Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) to determine the future course for the investors.
RBI is gearing up to announce its monetary policy on June 7, with the meeting, led by Reserve Bank Governor Shaktikanta Das, currently in session in Mumbai. This gathering follows closely on the heels of a renewed but less robust mandate for the NDA government, spearheaded by Prime Minister Narendra Modi.
In this session, the RBI faces the task of deciding on repo rates amidst inflationary challenges. For context, the repo rate is the interest rate at which the RBI lends to banks. When the repo rate is cut, it makes borrowing cheaper for banks, which in turn leads to lower loan rates and consequently, reduced EMIs.
The central bank last increased the repo rate to 6.5 percent in February 2023, and has maintained this rate through the last seven bi-monthly policies. Should the RBI decide to leave interest rates unchanged on June 7, it would mark the eighth consecutive instance of maintaining the status quo on the benchmark repo rate.
Experts suggest that a repo rate cut is unlikely, given the current growth momentum which has been revised upwards by several rating agencies.
Swati Saxena, Founder & CEO of 4 Thoughts Finance, a wealth management firm, echoes these views, anticipating a cautious approach from the RBI.
Saxena remarked: “Recent economic indicators reveal a deceleration in GDP growth to 7.8% year-on-year in the fourth quarter of the last fiscal year, down from 8.6% in the preceding quarter, yet an improvement from the 6.1% growth observed in the corresponding quarter of the previous year. This nuanced economic landscape suggests the RBI will likely prioritise bolstering economic recovery while vigilantly monitoring inflationary trends.
All things considered, Saxena expects the RBI to maintain current policy rates to stimulate investment and consumption, while carefully balancing the imperatives of fostering economic growth and mitigating inflationary pressures.
She adds that the investor sentiment is likely to remain optimistic, buoyed by the market's ongoing resilience and steady performance. This positive outlook is supported by robust economic indicators, strong corporate earnings reports, and sustained confidence in future growth. Additionally, the influx of institutional investments and continued liquidity availability are expected to uphold this bullish market sentiment, ensuring its persistence in the foreseeable future.
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Since then, the markets have slowly recovered and are back in the green again. But now all eyes are on the ongoing Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) to determine the future course for the investors.
RBI is gearing up to announce its monetary policy on June 7, with the meeting, led by Reserve Bank Governor Shaktikanta Das, currently in session in Mumbai. This gathering follows closely on the heels of a renewed but less robust mandate for the NDA government, spearheaded by Prime Minister Narendra Modi.
In this session, the RBI faces the task of deciding on repo rates amidst inflationary challenges. For context, the repo rate is the interest rate at which the RBI lends to banks. When the repo rate is cut, it makes borrowing cheaper for banks, which in turn leads to lower loan rates and consequently, reduced EMIs.
The central bank last increased the repo rate to 6.5 percent in February 2023, and has maintained this rate through the last seven bi-monthly policies. Should the RBI decide to leave interest rates unchanged on June 7, it would mark the eighth consecutive instance of maintaining the status quo on the benchmark repo rate.
Repo rate cut unlikely: Experts
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Swati Saxena, Founder & CEO of 4 Thoughts Finance, a wealth management firm, echoes these views, anticipating a cautious approach from the RBI.
Saxena remarked: “Recent economic indicators reveal a deceleration in GDP growth to 7.8% year-on-year in the fourth quarter of the last fiscal year, down from 8.6% in the preceding quarter, yet an improvement from the 6.1% growth observed in the corresponding quarter of the previous year. This nuanced economic landscape suggests the RBI will likely prioritise bolstering economic recovery while vigilantly monitoring inflationary trends.
All things considered, Saxena expects the RBI to maintain current policy rates to stimulate investment and consumption, while carefully balancing the imperatives of fostering economic growth and mitigating inflationary pressures.
She adds that the investor sentiment is likely to remain optimistic, buoyed by the market's ongoing resilience and steady performance. This positive outlook is supported by robust economic indicators, strong corporate earnings reports, and sustained confidence in future growth. Additionally, the influx of institutional investments and continued liquidity availability are expected to uphold this bullish market sentiment, ensuring its persistence in the foreseeable future.
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Meanwhile, as the MPC continues its deliberations, market volatility may persist, particularly impacting stocks that are sensitive to interest rate changes.