Dhan’s Post

RBI MPC Update – new Era of transformation Summary RBI kept the policy repo rate unchanged (4:2 majority vote with the two exceptions being Prof. Jayanth Varma & Dr. Ashima Goyal) at 6.50% for the eight straight policy with no specific tilt and hence a non-event for the markets. RBI is expected to track the Union Budget in July & normalcy levels of the monsoon (IMD expects at 106% of LPA). We expect RBI to cut repo rate by a total of 50bps in 2024 (25bps each likely in Oct and Dec, 24) with FED expected to cut their interest rate by 25bps each in Sep and Dec, 24. Other key interest rates also kept unchanged (SDF – 6.25%, MSF and Bank rate – 6.75%). Stance also was status quo – remain focussed on “withdrawal of accommodation”. 4/6 MPC members voted for policy decision and similarly 4/6 voted for stance decision. Monetary policy has greater elbow room to pursue price stability to ensure that inflation aligns to the target on a durable basis. FY25 GDP projections increased for all quarters - Q1 by 20bps to 7.3%, Q2 by 30bps to 7.2%, Q3 by 30bps to 7.3% and Q4 by 20bps to 7.2%. FY25 GDP projection increased by 20bps to 7.2%. FY25 Inflation projections kept status quo. Market impact @ 12.30pm post MPC: Equity indices up 1% likely on political developments; USD/INR almost flat but Annualised forwards in 6m lower by 0.4%, Government securities yields mostly flat but 5y Overnight Indexed Swaps (OIS) fell by 3bps. Press conference comments- a) Neutral rate will be published in the bulletin. b) Nothing is off the table, including rate hikes. c) Not in a position to comment on fiscal consolidation at the moment, it is the remit of the government. d) Once inflation reaches 4%, it needs to hold at that level for us to start thinking of further policy action. e) Risks can emerge from credit-deposit ratio widening further - want banks to restrategise their business. f) Have a lot of instruments to manage debt index inclusion related inflows.

Our pre policy note, expresses uncertainty in expectations.... ....But clarity on position we will run into MPC. What will December RBI MPC decide on (i) rate cuts, and (ii) liquidity? It all depends upon whether RBI puts more focus on growth (latest GDP numbers were underwhelming), or external sector (Rupee has weakened, alongwith other EM currencies). So what would RBI focus more on? Recent History may give us clue. Before the release of GDP numbers, RBI did not ease ever tightening liquidity. The overnight rate was fixed above the repo rate, yet RBI sat on the sidelines. In fact the Variable Repo Rates (VRRs) tendered in last week of November were also for a shorter amount than required. Why did the MPC stance change in Oct policy not lead to change in ground realities on liquidity? Because post MPC, US elections occurred and that put pressure on Rupee. Probably if US elections had happened before last MPC, RBI may have waited for stance change too. Thus, it was during this time, when RBI was focused on rupee, that the ugly GDP numbers were released. How much would GDP number change RBI's views? With RBI changing its narrative so often, it is difficult to predict. Any answer to this question will be based on everyone's personal bias. RBI has generally in the past decade, and specifically in the past few months, preferred to worry more about rupee and external sector. And thus, RBI will be wary in upcoming policy, despite growth pangs. Yet, the growth shock has been large. So, base case we expect either a rate cut, OR liquidity infusion. But the expected dispersion of MPC decision is high. While not our base case, but it will not surprise us if RBI takes no action on rate cuts, or liquidity. Or it takes both action. Or any of the four actions. There is too much uncertainty. How do we run our portfolio in such uncertainty? Our portfolios will be positioned expecting a dovish action by RBI. The risk / reward for long only funds has to play into such policy actions. After all we expect bond yields to fall in time, if not on policy date. So remaining long is a reasonable risk to run into policy. Note on inflation: As usual, I haven't mentioned inflation at all. Because that is the least important parameter for me. When inflation was below 5%, RBI said that will not let go of fight against inflation until it comes to 4%. In the last MPC when inflation was above 6%, RBI said that not just inflation, but dual mandate of growth also matters. So inflation will be more of a justification than a driver of RBI decision. RBI will mention inflation in its MPC, but the decision would be based on something else. #mpc #rbi #yields #debt #inflation #repo #bonds

The MPC's decision to hold rates while adopting a neutral stance is, in my eyes, a largely positive development, though I wouldn't deny my hopes dampening a bit due to key rates remaining unchanged. The lack of movement in terms of repo rate was probably needed to ensure continued stability in the liquidity landscape, ensuring that borrowing costs remain plateaued for both developers and consumers. Meanwhile, adopting a neutral stance implies the possibility of future rate reductions, potentially boosting future demand. In my opinion, this approach is highly nuanced, aiming to maintain the current robust status quo. Stakeholders can take advantage of this by choosing a more aggressive scale-up, particularly in light of potential future movements in benchmark rates. Read more: https://lnkd.in/dyiYV-qB The Economic Times #GDP #Inflation #MonetryPolicy

RBI MPC Meeting June 2024 Highlights: Repo rate unchanged , Real GDP growth at 7.2%. Key Highlights: • Key interest rate (repo) remains unchanged at 6.5%. • Repo rate was last hiked in February 2023. • Focus on withdrawal of accommodative monetary policy stance to bring down inflation. • Growth projection for FY 25 raised to 7.2% from 7%. • Inflation forecast for FY 25 retained at 4.5 %. • Food inflation still remains a concern. • The current account deficit for FY 25 expected to remain well within the sustainable level. • Foreign exchange reserves touched a fresh high of $ 651.5 billion as on 31 st March 2024. • Bulk deposit threshold raised to ₹ 3 crore from ₹ 2 crore. • Export and import regulations under Foreign Exchange Management Act (FEMA) to be rationalised. • RBI to set up Digital Payments Intelligence Platform to harness advanced technologies to mitigate payment fraud risks. • Auto replenishment of balance Fastag,NCMC,and UPI - Lite wallets brought under the e - mandate framework. • The Monetary Policy Committee decided by a 4:2 majority to keep the policy repo rate unchanged at 6.5%. Consequently, the standing deposit facility (SDF) rate remains at 6.25%, and the marginal standing facility (MSF) rate and the bank rate at 6.75%. Motilal Oswal Financial Services Ltd State Street WellsFargo.com Goldman Sachs Citi HSBC

The #clamour for a #rate #cut is rising. Will the #MPC blink as the rate setting panel gears up for the next review of the #monetary #policy from December 4 to 6? #My #View: Rate cut by #RBI is unlikely considering #Inflation risk and surging U.S. #Dollar Index (#DXY) as well as US #Treasury #Yields (#Bonds); which are factoring in proposed #tariff #hikes by Donald #Trump in January #2025.

*Repo Rate* 📈 Deciphering the Repo Rate: A Key Pillar of Monetary Policy. It's more than just a number. As financial professionals, understanding its impact is crucial. Here's why: ·        Monetary Policy Lever: Repo Rate adjustments by central banks regulate liquidity, influencing borrowing and spending patterns. ·        Market Barometer: Changes in Repo Rates signal market shifts, impacting investor sentiment and borrowing costs. ·        Economic Indicator: Repo Rate movements reflect central banks' strategies to manage inflation and spur economic growth. In a dynamic economic landscape, grasping the Repo Rate's nuances is essential for informed decision-making. Stay tuned for more insights. ------------------------------------------------------------------------------------------ RBI Repo rate: The Reserve Bank of India (RBI) governor ShaktiKanta Das announced the Monetary Policy Committee's (MPC) decision on interest rates after the two-day review meeting of the central bank's Monetary Policy Committee (MPC), the rate-setting panel. The meeting commenced on April 3 and concluded today (April 5). In the first MPC announcement in Financial Year 2024-25 (FY25), RBI governor kept the repo rate unchanged at 6.5 per cent for seventh consecutive time. Repo is the rate at which the central bank lends money to banks for the short term. What RBI governor said on repo rate? RBI governor said that the MPC will remain watchful of food inflation and the six-member rate-setting panel had favoured the status quo on interest rates by a majority vote of 5:1 while maintaining focus on withdrawal of accommodative stance. What RBI governor said on GDP growth? The RBI governor announced that there will be no changes in the GDP growth forecast for FY25 and the estimate was retained at 7 per cent for the current fiscal year. What RBI governor said on inflation? On the inflation front, the RBI MPC sees it at 4.5 percent for FY25. He said, “Inflation is on a declining trajectory and GDP growth is buoyant. At this juncture we should not lower our guard but continue to work towards ensuring that inflation aligns durably to the target.” “With rural demand catching up, consumption is expected to support growth in FY25. The RBI has projected a retail inflation of 4.5 per cent in fiscal 2024-25. It has projected an inflation of 4.9 per cent in Q1, 3.8 per cent in Q2, 4.6 per cent in Q3 and 4.5 per cent in Q4 of FY25,” he added. Source- HT News Desk #Finance #Economics #MonetaryPolicy #RepoRate #MarketTrends Regards, Sahil

RBI Policy Highlights Rate Announcements: • RBI decided to keep repo rate unchanged at 6.50% by a majority of 5 out of 6 members • MPC decided to remain focused on withdrawal of accommodation by a majority of 5 out of 6 members Growth: • RBI projected the GDP growth for FY25 at 7% • Quarterly break-up is projected at 7.1% in Q1, 6.9% in Q2 and 7% in Q3 and Q4 Inflation: • Assuming a normal monsoon, the RBI has projected that CPI inflation for FY25 will be at 4.5%. • On a quarterly basis, CPI inflation is expected to be 4.9% in Q1, 3.8% in Q2, 4.6% in Q3, and 4.5% in Q4 Liquidity: • Liquidity conditions improved during February and March, in the wake of increased government spending • WACR hovered near the repo rate since last policy meeting • RBI will conduct more VRRR auctions in April due to the surplus liquidity in the system • Monetary transmission continues to be work in progress • Rupee was the most stable among major currencies in FY24 Current Account Deficit: • India’s current account deficit narrowed significantly on account of a moderation in merchandise trade deficit, coupled with robust growth in services exports and strong remittances • ECBs and NRI deposits recorded higher net inflows vis-a-vis previous year • Forex reserves reached an all time high of $645.6 billion as of March 29, 2024 • India continues to be the receiver of the largest remittances in the world and the cost of receiving remittances is also coming down Other announcements: • Introduction of a mobile app to access RBI’s retail direct scheme for participation in G-Sec market. • Scheme for trading of sovereign green bonds at IFSC to be announced • Undertaking a comprehensive review of LCR framework for banks; draft circular to be issued shortly • Dealing in rupee interest rate derivative products for all small finance banks • Propose to facilitate deposit of cash in Cash Deposit Machines using UPI • UPI access for pre-paid instruments for third party apps – propose to permit using of TPAPs for making UPI payments from PPI wallets • Distribution of CBDC through non-bank payment system operators

Yet another MPC is out and as usual the takeaways in terms of growth inflation dynamics has been discussed in greater detail. The CRR cut was a major highlight. However beyond the obvious takeaways some finer points merit attention: 1. Introduction of Secured Overnight Rupee Rate (SORR), a new benchmark that supplements the MIBOR. As this derive from market repo and Treps it will be more representative for hedgers and aid loan pricing as global norm is to price loans w.r.t such rates rather than policy rates. 2. This time the Governor has explicitly stated at the outset that growth slowdown, though temporary, has been taken into account. The CRR cut has to be seen more as a growth supportive measure than a liquidity enhancing tool this time. Though advance tax, GST outflows and busy season demand are major factors, these are not new to FY25 and in previous years CRR was never used as an instrument to address such liquidity deficits. 3. The CRR cut benefits banks on multiple fronts: It improves their profitability, net worth (through profit accretion to reserves), capital adequacy ratios and overall balance shet strength putting them in a atronger pedestal to lend more to productive sectors. 4. Deposit slowdown concerns are largely unfounded: The MPC projects real gdp growth of 6.6% which is a nominal GDP growth of 9.5%. Current bank deposit growth rates of 11- 12% is in line with this, if not better. 5. The Impact of a hike in fcnr b ceiling rates playing out is not clear:.A similar move in June 2022 didn't move the needle much in terms of INR impact. INR will face pressure not just from a stronger dollar but also from a weaker Yuan as China might respond to US actions by currency devaluation. #MPC #inflation #SORR #CRR #banks

RBI Monetary policy committee meeting 2024 highlights: Today, December 6, the Reserve Bank of India (RBI) released its fifth bi-monthly monetary policy for FY25. For the eleventh consecutive meeting, the six-member Monetary Policy Committee (MPC), chaired by RBI Governor Shaktikanta Das, voted by a majority of 4 to 2 to maintain the benchmark repo rate at 6.5%, maintain the monetary policy stance of "Neutral," and remain unwaveringly focused on a long-term alignment of inflation with the target while promoting growth. Additionally, the cash reserve ratio (CRR) was cut by 50 basis points (bps) to 4% by the rate-setting panel. Highlights of the RBI MPC: Important lessons learned from the December RBI Policy Highlights of the RBI MPC: The following are the main conclusions from today's December RBI Policy: 1] Policy Actions: The 6.5% repo rate remained unchanged. The policy's "Neutral" attitude remains unaltered. SDF rate remained constant at 6.25%. MSF rate remained same at 6.75%. The bank rate remains at 6.75%. By a vote of 4 to 2, MPC members decided to keep things as they were. 50 bps to 4% CRR drop Two tranches of ₹1.16 lakh crore would be released into the banking sector by the CRR cut. 2. GDP Growth Projections: Estimates for FY25 GDP growth dropped from 7.2% to 6.6%. Estimates of quarterly GDP growth are FY25: Reduced from 7.2% to 6.6% Q3FY25: Reduced from 7.4% to 6.8% Q4FY25: Reduced from 7.4% to 7.2% Q1FY26: Reduced from 7.3% to 6.9% Q2FY26: Forecast for CPI Inflation at 7.3% 3. The CPI inflation target for FY25 was raised from 4.5% to 4.8%. The forecasts for quarterly inflation are FY25: Raised to 4.8% from 4.5% Q3FY25: Raised to 5.7% from 4.8% Q4FY25: Raised to 4.5% from 4.2% Q1FY26: Raised to 4.6% from 4.3% Q2FY26: At 4% 4] Additional measures: The FX-Retail platform will be connected to NPCI's Bharat Connect platform. The Secured Money Markets benchmark, the Secured Overnight Rupee Rate (SORR), will be introduced. Collateral-free agricultural loans would now be worth ₹2 lakh per borrower instead of ₹1.6 lakh. Through the UP, small finance banks are allowed to offer pre-approved loan lines. Forming a committee to Suggest the Financial Sector's Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) Launch of Mule Hunter and the Introduction of Podcasting as an Extra Communication Channel. An AI method for locating mule bank accounts Launch of the Open Regulation Initiative "Connect 2 Regulate"

RBI Keeps Repo Rate Unchanged in Bi-Monthly Monetary Policy Review https://ift.tt/wsFdDHv The Reserve Bank of India (RBI) Governor Shaktikanta Das revealed the second bi-monthly monetary policy of FY 2024-25 on Friday, marking the first policy announcement post the Lok Sabha election results 2024. The six-member Monetary Policy Committee (MPC) headed by Das decided to maintain the benchmark repo rate at 6.5%, unchanged for the eighth consecutive time, with a majority vote of 4:2. In addition to keeping the repo rate steady, the MPC decided to continue with its stance of ‘withdrawal of accommodation’, reflecting the central bank’s cautious approach towards monetary policy amid evolving economic conditions. Despite maintaining the status quo on interest rates, the RBI raised its GDP growth forecast for FY25 to 7.2% from the earlier projection of 7%, signaling optimism about economic recovery and growth prospects. However, the central bank retained its inflation forecast for FY25 at 4.5%, highlighting its commitment to price stability. Financial experts and analysts are closely monitoring the RBI’s future policy trajectory, with speculation arising about a potential change in stance in August 2024. Deepak Agrawal, CIO – Debt, Kotak Mutual Fund, suggests a higher probability of the RBI shifting its MPC stance to “Neutral” in preparation for rate adjustments in the latter half of FY 2025. Market reactions to the policy decision have been relatively muted, with 10-year Gsec yields trading within a narrow band of 7-7.03%. Nilesh Shah, Managing Director, Kotak Mahindra AMC, commends the RBI’s prudent conduct, noting the favorable economic indicators and stable market conditions. As the RBI continues to navigate through the complexities of economic recovery and inflation management, stakeholders remain attentive to forthcoming policy developments and their implications for monetary stability and growth. Follow the RBI MPC Meeting Live for the latest updates and insights from experts in the financial landscape. via https://ift.tt/7J42aSL June 07, 2024 at 12:28PM