In line with market expectations, the Reserve Bank of India (RBI) on Thursday kept its benchmark rate at 6.5% while announcing its second bi-monthly policy for the financial year 2023–24 (FY24), concluding a 3-day meeting.
The RBI has revised its CPI inflation forecast for FY23–24 to 5.1%. The RBI anticipates inflation to be approximately 4.6% in Q1, 5.2% in Q2, 5.4% in Q3, and 5.1% in Q4.
"Even though the MPC’s rate decision and stance have come on expected lines as a pause and withdrawal of accommodation, respectively, the Governor’s commentary can be interpreted as positive. The central bank’s projection of FY24 CPI inflation has come in at 5.1%, lower than the 5.2% projected in the previous meeting."
"This indicates that the MPC has come to the end of this rate hiking cycle. If the monsoon is normal and the global scenario is favourable, the MPC may think about a rate cut by the end of CY 2023 or early 2024," said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"From the stock market perspective, this is positive. The Governor’s remark that ‘India’s economic and financial sector remains resilient amidst global turmoil’ is a reflection of India’s strong and improving fundamentals," he added.
Market experts expected the RBI to maintain a pause in rate hikes due to the drop in inflation.
The retail inflation based on the Consumer Price Index (CPI) slowed sharply to 4.7% in April 2023, marking the lowest level since October 2021.
Food inflation came in at 3.84% in April, the lowest since November 2021, with a fall in prices for vegetables and edible oil. The headline inflation started easing in March 2023, dropping to 5.66% from 6.44% registered in February.
During the first bi-monthly policy in April, the RBI made a surprising decision to keep its benchmark rate unchanged at 6.5% after delivering six consecutive hikes, that began in May last year and continued till February this year, pushing the repo rate to 6.5% with a 250-basis point hike.
Markets reacted positively in response to the RBI status quo for the second consecutive time. Both the Indian benchmark indices, the Nifty 50 and the Sensex, were trading near their all-time highs.
During Thursday's trade, the Nifty 50 jumped 0.28% and was just 0.60% away from its all-time high of 18,887, while the Sensex was just 0.45% away from its record high of 63,583.
Among sectoral indices, Nifty Metal was up by 1.01%, and Nifty PSU Bank gained 0.53. On the flip side, Nifty FMCG, Nifty Auto, Nifty IT, and Nifty Realty were trading in a negative zone with a drop between 0.10% and 0.60%.
Meanwhile, the Indian currency strengthened by 6 paise from its day high of 82.61 against the USD.
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