Sandeep Yadav’s Post

RBI MPC Update – Keep Calm, Carry On 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 ninth straight policy with no specific tilt and hence a non-event for the markets. RBI is expected to track both domestic and external data. We expect RBI to cut repo rate by a total of 50bps in this shallow rate cut cycle (25bps starting in Dec, 24) with FED expected to cut their interest rates this CY by at least 50-75bps. 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. Ensure price stability would strengthen the foundations for a sustained period of high growth. Q1 FY25 GDP projection reduced by 20bps to 7.1%, rest kept same and Q1FY26 GDP projected at 7.2%. CPI projections (FY25) – Q2 increased by 60bps to 4.4%, Q3 increased by 10bps to 4.7% & Q4 reduced by 20bps to 4.3%. Q1 FY26 CPI projected at 4.4%. Market impact @ 12.30pm post MPC: Equity indices up 0.4%; USD/INR flat; Annualised forwards in 6m higher by 1%; Government securities yields flat but 1y Overnight Indexed Swaps (OIS) higher by 3.5bps due to no comments on stance & liquidity. Press conference comments- a) It would be premature to talk about a recession in the US at this point b) LCR rules are at a draft stage, waiting for feedback c) Higher neutral rate is due to better performance of the economy d) Credit-Deposit growth mismatch could create liquidity management issues for banks e) Want to maintain overnight call rate in the middle of the policy rate corridor - Call rate reflects monetary policy stance.

*Highlights of RBI Monetary Policy Meeting* *RBI Maintains Neutral Stance on Repo Rate, Reduces CRR to Ensure Liquidity Support Amid Economic Uncertainties* 🔹The MPC meeting outcome was in line with our expectations which remained staus quo, except the stance. A majority of 4:2 kept the repo rate unchanged at 6.5%. The SDF and MSF rates were unchanged at 6.25% and 6.75%, respectively. 🔹The MPC continued its monetary policy stance to “Neutral” and remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth. The change in stance provides flexibility to the MPC while enabling it to monitor the progress on disinflation which is still incomplete. 🔹The GDP growth forecast for FY25 was unchanged at 6.6% as estimated earlier, underpinned by a resilient global economy, rural demand improvement, healthy capacity utilisation levels at industries, and robust business optimism. The GDP forecast for Q3 was revised downwards to 7.4% from 6.8%, Q4 was revised to 7.2% from 7.4%, Q1FY26 was revised downwards to 6.9% from 7.4% and Q2FY26 to 7.3%. 🔹The consumer price inflation forecast for FY25 was revised upwards at 4.8%, with the outlook for agriculture and rural economy looking bright. The consumer price inflation forecast for Q3 was revised upwards to 5.7% from 4.8%, Q4 was revised upwards to 4.5% from 4.2%, Q1FY26 was revised downwards to 4.6% from 4.3%. The central bank also forcasted for Q2FY26 to 4.0%. Food inflation surged in Q3 but is expected to moderate in Q4 with better crop outputs. Upside risks remain due to global price volatility in edible oils and geopolitical disruptions. *Our View* The MPC decided to maintain a neutral stance and keep the repo rate unchanged at 6.50% to balance the conflicting pressures of growth and inflation. This decision reflects current economic conditions, where inflation surged above the 6% tolerance band due to elevated food prices, while growth showed signs of slowing. A neutral stance allows the RBI to monitor the evolving environment and address inflationary concerns while supporting growth. Emphasizing durable price stability as a foundation for sustained economic expansion, this cautious approach acknowledges the complexities of the current scenario. Additionally, the RBI reduced the Cash Reserve Ratio (CRR) of all banks by 50 basis points in two tranches, bringing it back to 4.0% of net demand and time liabilities (NDTL). This measure, aligned with the neutral stance, aims to release Rs. 1.16 lakh crores into the banking system, addressing potential liquidity tightening caused by tax outflows, increased currency circulation, and volatile capital flows. By easing liquidity stress, the move ensures adequate funds for the economy’s productive needs, supporting financial stability and growth momentum.

RBI Monetary Policy 2024 Highlights: Key Decisions and Market Impact 👇 Repo Rate Unchanged at 6.5% RBI Governor Shaktikanta Das announced that the Monetary Policy Committee (MPC) decided to keep the benchmark repo rate unchanged at 6.5% for the 11th consecutive meeting. The monetary policy stance remains ‘Neutral.’ CRR Cut by 50 bps to 4% The Cash Reserve Ratio (CRR) has been reduced by 50 basis points to 4%. This move is expected to inject additional liquidity into the banking system and boost credit flow. New Benchmark: Secured Overnight Rupee Rate (SORR) To enhance the credibility of interest rate benchmarks and develop the derivatives market, the RBI will introduce the Secured Overnight Rupee Rate (SORR). This benchmark will be based on secured money market transactions, including overnight repo and TREPS. SFBs to Offer Credit Lines via UPI Small Finance Banks (SFBs) have been permitted to extend pre-sanctioned credit lines through UPI. This initiative aims to deepen financial inclusion, especially benefiting ‘new-to-credit’ customers. Inflation Projections Raised for FY25 The RBI revised its FY25 CPI inflation target upward to 4.8% (from 4.5%). Q3 FY25: Increased to 5.7% (from 4.8%). Q4 FY25: Increased to 4.5% (from 4.2%). Q1 FY26: Increased to 4.6% (from 4.3%). Q2 FY26: Estimated at 4%. GDP Growth Estimate Lowered The FY25 GDP growth projection has been cut to 6.6% (from 7.2%). Q3 FY25: Revised to 6.8% (from 7.4%). Q4 FY25: Revised to 7.2% (from 7.4%). Q1 FY26: Revised to 6.9% (from 7.3%). Q2 FY26: Estimated at 7.3%. Impact on Markets Indian equity markets (Sensex and Nifty 50) turned positive after the CRR cut announcement, signaling optimism among investors. Stay tuned for further updates as the RBI’s policy measures unfold and their implications become clearer for the financial markets and the broader economy.

The RBI Monetary Policy Committee (MPC) has kept the repo rate unchanged at 6.50 per cent in its June monetary policy. However, interestingly this time dissent among the MPC members have increased by 4:2 compared to previous 5:1, indicating ceteris paribus, possible forthcoming changes in either rate or stance or both in the next monetary policy. The details will be unfolded when the details pertaining to the monetary policy minutes would be published. Based on the encouraging real GDP growth rate of 8.2 per cent in FY 2023-24 as compared to the growth rate of 7.0% in FY 2022-23, the real GDP growth projections have been enhanced upwards by the RBI. Real GDP growth for 2024-25 is projected at 7.2 per cent (enhanced from 7.0 per cent from the previous projection). On the other hand, while admitting that core inflation is reducing and well range-bound, the RBI has expressed concerns about the volatility of the food inflation. It is interesting to note that the Governor statement highlighted that the monetary policy decision depends on both global and local factors.It is further highlighted that Central banks remain steadfast and data-dependent in their fight against inflation. Some central banks from advanced economies like Switzerland, Sweden, Canada and Euro Area have begun their rate easing cycle during 2024. On the other hand, market expectations of rate cut by the US Fed, which was higher earlier, have moderated subsequently. Market expectations regarding the timing and pace of interest rate cuts are also changing with incoming data and central bank communication. It seems that going forward, the RBI could resort towards a dovish stance, however, the concern remains regarding food and especially vegetable inflation as well as a clear rate softening stance from the Fed, for which market is eagerly waiting. The hotter than job market, whereas the increase in the nonfarm payroll employment by 272,000 in May’24, and the little change in the unemployment rate has made the Fed’s rate softening stance more challenging.

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.

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 Maintains Policy Rates, Signals Caution: Insights from Vivek Kumar, Economist at QuantEco The status quo on monetary policy along with the 50 bps reduction in the reserve requirement was completely in line with our expectations. The key message from the policy announcement appears to be a tacit acknowledgement of some deterioration in the near-term growth-inflation balance. With rupee facing depreciation pressures, the RBI’s unwavering focus on inflation can be justified. An uncertain geopolitical and geo-economics backdrop warrants caution and hence it is prudent to preserve policy space for known-unknown risks. Meanwhile, it was important to preserve the ‘neutral’ policy stance and not let unsterilized FX intervention, in the form of heavy dollar sale in the last 2-months jeopardize money market stability. Infusion of Rs 1.16 lakh cr of durable liquidity via CRR cut should help in equilibrium in the money market. In addition, the 150 bps hike in deposit rate ceiling for NRIs should on the margin help reduce the extent of drawdown pressure on RBI’s holding of foreign currency assets, which is lower by approximately USD 50 bn in about 7-weeks. With the likelihood of food price pressures receding by the end of Dec-24, CPI inflation is expected to revert towards ~4.5% levels in Q4 FY25. With growth momentum likely to soften somewhat on account of expectation of continued fiscal tightening in FY26 along with escalation of global uncertainties, the MPC could opt for a pivot on monetary policy in the next review in Feb-24. On cumulative basis, we expect the MPC to reduce repo rate by 75 bps through the course of the cycle, with the first 25 bps cut taking place in Feb-24.

Will RBI pivot in Oct monetary policy ? Policy expectations and market views Market participants are widely expecting RBI to be status quo in Oct monetary policy Some important questions are: 1) Should RBI pivot on monetary policy rates? We believe that Oct policy is too soon for RBI to react and they may choose to remain status quo on monetary policy rates as: a) Underlying Growth momentum continues to remain strong b) RBI would prefer to remain cautious due to rising geopolitical uncertainty c) China unveiled a big stimulus last week, which can impact commodity prices and break the global disinflationary trends 2) Should RBI change its monetary policy stance? We believe yes they should change monetary policy stance to neutral a) Inflation for Q2 2024 and next 6-12 months remains comfortably below 4.5%. Core inflation which excludes the volatile food fuel prices is below 4% and don’t expect it to rise materially higher. b) Growth momentum continues to remain strong, but we see early signs of weakness in some high frequency indicators like PV sales, GST collections, YTD credit growth, lower capex by government which makes us believe that RBI can tilt its focus on growth and pivot to neutral stance C) Global central banks across have been easing monetary policy rates ( 28 rate cuts by various central banks in last quarter- highest since Covid times) which adds pressure on RBI to change its stance d) Post last week’s US employment data, markets have realigned future rate cuts expectations We believe that Fed will continue to cut rates and expect another 50 bps till Dec 2024 US CPI is expected to be ~2.75 for next 6-12 months and hence expect Fed to target Fed funds rate -3.5% by end 2025 Fed’ pivot should give RBI comfort that directionally US rates would trend lower which inturn can lead to stance change. 3) Should RBI lower its growth inflation projections? Rising geopolitical uncertainties would refrain RBI from making any changes in their inflation projections and would retain it at 4.5% Growth projections might be revised lower to 6.8% in lieu of slowing global growth trends 4) Should RBI cut CRR? RBI has been maintaining CRR of 4.5% vs pre Covid 4% but we don’t expect RBI to cut CRR as core durable liquidity is hugely surplus at over INR 5 trillion and Govt has started to announce buy backs which would ensure adequate banking liquidity in near term Market impact near term Scenario 1: No change in rates / stance Expect markets to trade in a narrow range, 10 year gsec - 6.75-88% Reasons: 1) Traders have massively lightened positions in last few trading sessions 2) Expect UST yields to trend lower after sharp 40 bps rise in last one week 3) FPI demand for bonds remains robust leading to favourable demand supply Scenario 2 Stance change : Expect markets to rally by 8-10 bps across the curve and yields to trend lower as markets will start pricing in a 25 bps cut in Dec policy

RBI Monetary Policy: A Prudent Stance Amid Global Uncertainty Today, the RBI maintained the repo rate at 6.5% for the tenth consecutive monetary policy review, defying expectations of a rate cut following recent global trends like the US Federal Reserve's move. Instead, the RBI has shifted its stance to a more flexible ‘neutral’ position, reflecting its cautious approach amid global uncertainties. Key Takeaways: Repo Rate: Unchanged at 6.5% for the tenth straight review [Source: RBI, October 2024]. Monetary Policy Stance: Shifted from ‘withdrawal of accommodation’ to ‘neutral’, hinting at potential rate cuts if inflation cools down [Source: RBI Governor’s Address, October 2024]. GDP Growth Forecast: Held at 7.2% for FY25, showcasing the RBI’s confidence in long-term growth [Source: RBI, October 2024]. Inflation Projection: Set at 4.5% for FY25, but risks remain from food price hikes and geopolitical tensions, particularly in West Asia [Source: Suman Chowdhury, Acuité Ratings & Research]. Why No Rate Cut? Despite inflation staying below 4% recently, rising food prices and geopolitical risks (like the ongoing conflict in West Asia) present a significant challenge. Inflation is expected to jump to 5.2% in September, primarily driven by food costs and an unfavorable base effect. The RBI’s cautious stance reflects its focus on ensuring financial stability in the face of these risks. What’s Next? With a neutral stance, the RBI keeps its options open. If inflation trends down by Q4, a rate cut may be on the table as early as December 2024 [Source: CareEdge Ratings, October 2024]. Impact on Borrowers: Borrowers will see no immediate changes in repo-linked lending rates, which brings some relief. However, banks might adjust their MCLR rates based on earlier hikes, so borrowers should keep an eye on that. Your Thoughts? Share how do you think this decision will affect borrowing trends and economic growth in the next quarter👇 #RBIMonetaryPolicy #IndianEconomy #Inflation #RepoRate #EconomicGrowth #FinancialStability #Banking