RBI MPC Meeting October 2024 Highlights: RBI keeps repo rate unchanged at 6.5%, changes stance to ‘neutral’

High rates are not impinging on growth, he said. Interest rate peaked in Feb, 2023 and there has been a pause since then, he added. 

This is the 51st meeting of MPCs. It has worked well to manage inflation and no review is required. The system has worked well and responded to many challenges. It gives a satisfaction, he said. 

FIT (flexible inflation target) completed 8 years, this is a moment to introspect, he said. Framework worked through different cycles and proved strength.

Our own growth and inflation dynamics are quite robust, and we have also been building up buffers against spillovers from the rest of the world. So we think we are more confident about the evolving situation for India, he said. 

PMI is 56.5 per cent in manufacturing and 57 per cent in services, which is the highest in the world, he said. 

Don’t think there is a tendency to overlook lending norms; only certain outlier cases get highlighted, he said.

The reason for changing from elephant to horse as it is a war against inflation; will use narayana and other astram when required, he said. 

When you know both inflation and growth are well balanced, there was no point in continuing which there was no justification to continue with withdrawal of accommodation, he said. 

Outlook for crude is softer as demand for crude oil is expected to be softer, he said. 

Lenders are expected to price loans as per risk; higher credit cost possibly reflects poor underwriting standards, he said. 

The commentary from June-August data, shows there are certain elevated slippages and higher credit costs in certain segment, he said. 

Corporates have deleveraged balance sheet and government capex to boost the economy. Besides this, agriculture is going to give a big boost to the economy, he said. 

We have now greater confidence that inflation is moderating, but we are acutely aware that there are significant risks, he said. 

The inflation horse has been brought to stable, we will remain very careful before we open doors, the governor said. 

Lending, deposit and other money market rates will move in tandem to policy rates, he said. Lending and deposit rates depend on the commercial interest of banks, he added.

The Reserve Bank will continue to be nimble and flexible in liquidity management operations, he said. 

Inflation is on a declining path, although we still have a distance to cover, he said. 

Rajani Sinha, Chief Economist, CareEdge:

With the change in stance, the MPC has given itself the flexibility to cut rates going forward, depending on how the domestic and global conditions pan out for CPI inflation. While the RBI governor indicated the comfort provided by surplus monsoon and healthy Kharif harvest, he remained cautious of certain inflationary risks. Any adverse weather conditions, escalation of geo-political conflicts and the recent sharp increase in commodity prices needs to be monitored for future inflation trajectory.

We feel that there are chances of a shallow rate cut of 25 bps in the December policy, followed by another 25 bps in the March policy, provided food inflation moderates. While the Central Bank remains optimistic on growth, some moderation in recent high frequency economic indicators like core sector, PMI Manufacturing, GST collections, passenger car sales also give reason for the RBI to look at rate cuts going forward. Expectations of further rate cuts by major global Central Banks including US Federal Reserve is also supportive of a rate cut by RBI.

Dharmakirti Joshi, Chief Economist, CRISIL, on today’s monetary policy announcement: 

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) adopted a ‘neutral’ stance but kept the policy rate unchanged. While this signals circumspection, it also underscores the likelihood of a rate cut in December.

It is obvious that high food inflation is constraining Mint Road. To be sure, non-food inflation stayed significantly below trend at 2.3% in the first five months of the current fiscal.

The outsized US Federal Reserve rate cut of 50 basis points in September marked complete and a decisive turn in monetary policy among major central banks. Yet, for emerging market peers, domestic inflation concerns are at the front and centre.

We anticipate a 25-basis-point reduction in the repo rate during the MPC’s policy review meeting in December, in response to the expectation that food inflation will decline. We also expect GDP growth to moderate to 6.8% this fiscal compared with 7.2% forecasted by RBI for this year.

Agricultural output is expected to improve with rains favourable during the kharif season and prospects for the rabi season improving because of better water reservoir position.

Globally, risks and uncertainties persist, with escalating tensions in the Middle East, weather uncertainties and outcome of US elections in focus. Reason why the RBI took a cautious approach and kept its powder dry.

Aditi Nayar, Chief Economist and head of Research and Outreach, ICRA Ltd:

“Today’s MPC review prudently prioritised flexibility, by changing the stance to neutral, in line with our expectations. This has opened the door for a potential rate cut in December 2024, if the lurking risks to inflation, both domestic and global, do not materialise. In our view, the Indian rate cut cycle will be fairly shallow, restricted to 50 bps over two policy reviews.”

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said, “RBI’s decision to hold rates while changing the stance to neutral is completely in line with our expectations. The tone of the Governor remains fairly balanced keeping further decisions data dependent. We continue to expect the onset of rate easing from December with a 25bps cut but the scale of easing in this cycle is expected to be shallow with limited scope for back to back easing in each policy.”

Pralay Mondal, MD & CEO, CSB Bank: 

“Monetary policy stance change to Neutral is a welcome move as it may alleviate some stress in the deposit space. Keeping the repo unchanged among geopolitical uncertainties is very prudent. Account recognition facilities on money transfer will certainly help curb prevent any misuse of account by fraudsters. Overall the stance is appropriate with evolving local and global conditions.”

Ashwin Chadha, CEO, India Sotheby’s International Realty:

We were more hopeful of a rate cut this time around, after moves by the U.S. Federal Reserve and other central banks. But the RBI’s decision to hold the repo rate steady for the 10th time in a row shows that India is laser-focused on its own economic landscape, rather than following global cues.

One standout from the Monetary Policy Committee’s (MPC) meeting is the shift to a neutral stance, which suggests they’re open to more flexibility. While inflation is on a downward trend, it’s still not entirely stable, and the MPC is aiming for that 4% sweet spot.

A rate cut is certainly on the cards if inflation keeps cooling off, which looks promising in the near term.

For real estate, this steady approach is a win. With stable interest rates, homebuyers, especially during the festive season, will feel more confident in making their purchase decisions.

Vimal Nadar, Head of Research, Colliers India

While RBI has kept the benchmark lending rates unchanged at 6.5%, a change in stance from “withdrawal of accommodation” to “neutral” indicates its clear direction for a possible reduction in interest rates in the foreseeable future. This ongoing stability in repo rate should provide a significant thrust to residential real estate during these festive months as home loan interest rates are likely to remain steady. 

Typically, Q4, marked by higher inclination of homebuyers to wrap-up property purchases during the auspicious period combined with instantaneous liquidity benefit aided by developers offering attractive discounts, has historically provided the final push to housing sales across the major markets in the country. Additionally, steady borrowing costs and recent extension of Input Tax Credit (ITC) by the Supreme Court can potentially benefit property developers engaged in construction of commercial office buildings.

Saugata Bhattacharya, Professor Ram Singh, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and RBI Governor Shaktikanta Das voted to keep the policy repo rate unchanged at 6.50 per cent. Dr. Nagesh Kumar voted to reduce the policy repo rate by 25 basis points.

Dr. Nagesh Kumar, Shri Saugata Bhattacharya, Professor Ram Singh, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and RBI Governor Shaktikanta Das voted for a change in stance from ‘withdrawal of accommodation’ to ‘neutral’ and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth. 

Repo Rate Unchanged - Housing Set for Festive Season 

Anuj Puri, Chairman - ANAROCK Group:

With the fundamentals of the Indian economy remaining strong despite global headwinds, geopolitical tensions and inflation well within control, the RBI has once again decided to keep the repo rates unchanged at 6.5% - thus helping the housing market to maintain momentum during the festive season. While a repo rate cut would have been preferable, it is clear that the RBI is on a tightrope walk and must keep various macro-economic factors in mind. 

From the point of view of homebuyers, the relatively affordable home loan interest rate regime will continue at a critical time for the Indian housing market - the festive season - amid rising housing prices and tapered sales. Q3 2024 saw average housing prices rise by a cumulative 23% in the top 7 cities even as average prices in these markets collectively rose to approx. INR 8,390 per sq. ft. by Q3 2024-end, from approx. INR 6,800 per sq. ft. in Q3 2023. 

Housing sales also declined to an extent in Q3 2024, even as prices rose. As per ANAROCK data, Q3 2024 saw residential sales go down by 11% annually against Q3 2023. New launches also fell by 19% in this period. 

The unchanged home loan rates are much-needed demand support in the ongoing festive quarter. We are expecting faster sales momentum in Q4 2024 when compared to the preceding quarter. This year’s festive quarter may see similar demand to that seen in this period a year ago, if not higher. Over 1.27 lakh units were sold across the top 7 cities back in Q4 2023. Unchanged interest rates will play and important role in achieving and maintaining this momentum.

We stand unambiguously committed to ensure double alignment of inflation with the target while supporting growth in the prevailing macroeconomic conditions, he said. 

We are not complacent amid rapidly evolving global conditions, he said. 

UPI payment limits have been hiked. It has been decided to enhance the per transaction limit in UPI 123 Pay from ₹5,000 to ₹10,000, he said.

current account deficit should remain at sustainable level, he said. FDI flows remains strong and India’s external sector remains strong, he added. 

RBI could take action if irregularities found by NBFCs in lending operations, he said. 

Banks and NBFCs are not permitted to levy foreclosure charges or pre penalty, prepayment penalties on any floating rate term loan sanctioned to individual borrowers for non business purposes. It is now proposed to broaden the scope of these guidelines to include loans to micro and small enterprises, micro and small enterprises, he said.

Important for NBFCs to follow sustainable biz goal, compliance first culture, strong risk management structure, fair lending practises, he said. 

NBFCs should review compensation structure, he added.

Some NBFCs, including microfinance institutions and housing finance companies, are chasing excessive returns on their equity, he said. These practices are sometimes further accentuated by what appears to be a push effect, as business targets drive retail credit growth rather than its actual demand, he added. 

There has been some recent commentary on the likelihood of stress build-up in a few unsecured loan segments, like loans for consumption purposes, microfinance, loans and credit card outstandings. The Reserve Bank is closely monitoring the incoming.

Recent commentary on stress in MFI, credit card, consumer loans is being tracked by RBI, will take corrective actions if necessary, he said. Banks need to be careful with underwriting; continued attention needed on inoperative deposit account, cyber security, mule accounts, he added. 

Indian rupee least volatile among emerging market currencies, reflects strong macro economic fundamentals, he said. 

Yield on 3 months t-bill and commercial papers issued by NBFCs eased, while certain of deposit turned up marginally, he said. 

RBI will continue to be nimble and flexible in liquidity management operations, will use various tools to ensure durable liquidity.

Inflation horse has been bought close to stable, we must keep the horse at tight leash, he said. 

Inflation is closer to the target, within the tolerance band compared to its highest or heightened levels two years ago.

We must keep the horse in tight leash so that we do not lose control going forward, we need to closely monitor the evolving conditions for further confirmation of the disinflationary impulses, he added.

Significant risks to inflation from adverse weather events, accentuating geopolitical conflicts, and the very recent increase in certain commodity prices continue to stare at us, RBI Guv said. 

The prevailing and the expected inflation growth balance have created congenial conditions for a change in monetary policy stance, he said. 

Despite the near term upsides to inflation from food prices, the evolving domestic price situation signals moderation in headline inflation thereafter, RBI Guv said. 

* CPI inflation for 2024-25 is projected at 4.5%* In q2 CPI inflation is expected at 4.1%* Q3 retail inflation outlook at 4.8%* Q4 inflation expected at 4.2%

Unexpected rain and worsening geopolitical issue is a risk to growth, he said.

The CPI print for the month of September is expected to see a big jump due to unfavourable base effects and pick-up in food price momentum.

Food inflation experienced certain degree of correction, he said. Considerable Divergence observed in food sub groups, he added. Deflation in fuel continued, he added.

* Q2 growth projected at 7%* Q3 growth projected at 7.4% * Q4 growth projected at 7.4* Real GDP growth for Q1 of the next financial year FY25-26 is projected at 7.3%

The mainstay of aggregate demand, look bright on the back of improved agricultural outlook and rural demand, he said. Investment activity would benefit from consumption, he said. 

Investment activity remains buoyant with government capex rebounding from a contraction observed in the first quarter of this year, he said. 

RBI MPC live updates: Domestic economic activity continues being steady, he said. High-frequency indicator points to domestic industrial activity steady, he added. The main components from the supply side, that is agriculture, manufacturing and services, they remain resilient, he said.

Manufacturing activity is gaining on the back of improving domestic demand, lower input costs and supportive government policies, he said.

MPC decided to remain watchful of the evolving outlook in the coming months, keeping in view, he said. The global economy has remained resilient since the last meeting of the MEC in August, he added. 

Resilient growth gives us the space to focus on inflation, so as to enable its durable descent to the 4% target, he said. 

MPC decided to remain watchful of developments in coming months and change the stance to neutral, he added.

Going forward, the moderation in headline inflation is expected to reverse in September and likely to remain elevated in the near term due to adverse base effects, RBI Governor said. Food inflation pressure could seee easing in later part of fiscal, he said.

RBI MPC meeting Outcomes: MPC decided the macro is well balanced, said RBI Governor Shaktikanta Das. Moderation in inflation from September, he said. 

Flexible inflation targeting has served us well, brought price stability during COVID-19, he said. 

Foreign Banks expect the Reserve Bank of India (RBI) to keep policy rate unchanged at 6.5 per cent even as some see the central bank changing stance at the upcoming Monetary Policy Committee (MPC) meeting on October 7-9. 

The upcoming MPC meeting will be the first for the three new external MPC members. The government has recently appointed Ram Singh, Saugata Bhattacharya and Nagesh Kumar as the new members of the MPC for four-year terms.