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“Tight liquidity conditions along with the repo rate hike would lead to a significant rise in the cost of funding, impacting home loan rates as well. Going by the current trends we expect about 50% of this will be passed onto the home loan borrowers. A rise in home loan rates will further impact affordability across the markets. As per Knight Frank affordability index will deteriorate by another 2% This might slowdown home buying decision for a short to medium term. However, we hope, India’s steady economic growth and revival in consumer’s sentiment towards the economy will bring back confidence amongst the end users and support their home buying activities.”

"The Reserve Bank of India (RBI) hiked repo rates by 50 basis points to 5.90%. With this rate hike they have further closed the gap between inflation and interest rates which currently stands at 7%. We are in a much better position compared to all the other major global economies which are still struggling with high inflation and falling behind the curve. With the gap between our inflation and interest rates narrowing we expect the quantum and speed of rate hikes to reduce going forward."

The MPC voted to raise the repo rate by 50 bps taking it to 5.9% as widely expected while remaining focused on the withdrawal of accommodation. A higher rate hike is justified in the backdrop of inflation remaining at elevated levels. Economic growth has remained resilient in the face of an adverse global environment. The recent sharp depreciation in the rupee (although well managed compared to other emerging countries) might have weighed on members’ decision in favour of a larger rate hike, addressing external sector imbalance and reducing the interest rate differential. Overall, it was a prudent policy announcement with no negative surprises. The next stage of response could be calibrated; we expect the terminal repo rate would be 6.25-6.40% by FY23 end.”

Rate sensitive sectors extended gains after the RBI raised repo rates by 50 bps as expected. The Nifty Bank index jumped 2 percent, Nifty Fin services advanced 1.8 percent, whereas Nifty Auto and Nifty Realty also added 1 percent each. Both Sensex and Nifty were also trading over a percent higher.

“The RBI increased the repo rate by 50bps, in line with expectations, with core inflation being sticky and continuing to hover over the upper tolerance limit, unfavorable global conditions, and the Indian rupee depreciating against the dollar. With RBI data indicating strong credit growth, currently at a multi-year high, we believe most banks, especially those with a higher share of the floating rate will be better placed in the rising interest rate environment. However, the lagging deposit growth remains a cause of concern. While India is in a better place than its global peers, with domestic indicators showing continuous improvement, global factors such as ECB and Fed’s indication of steeper rate hikes in the coming policies will continue to force RBI to front load interest rates in the coming MPC meetings.”

“The rate hike by the MPC was on expected lines. The rate hikes by the fed and soaring food and energy prices pose a challenge to emerging economies including India. Withdrawal of the accommodative stance is an indication of the fact that the bigger challenge for the RBI is controlling inflation and keeping it within the tolerable range”.

"The outcome of the MPC meeting is on expected lines as RBI raised the repo rate by 50bps. The central bank gave a very balanced guidance emphasizing on continuing resilient domestic economic growth with risks being rising instability in the global economic and financial environment. Overall the markets have reacted positively to the policy announcement.”

"The MPC delivered 50bps hike in line with expectations. Clearly, the fast-evolving world order and consistent repricing of Fed’s outsized hikes are strong-arming the EMs. At this point, we still think that the RBI would not go too restrictive and terminal rate could hover near the estimated real rates, implying not more than 100bps hikes ahead, including today’s decision. However, the extent of global disruption will remain key to the RBI’s reaction function ahead.”

"The 50bps hike in the policy rate to 5.9% was expected. However, the inflation estimates were the key monitorable. The inflation was expected to be at 6% for the second half of the financial year and GDP growth is expected to be at 7% for the entire fiscal. Factoring the daunting challenge of inflation, the repo hike is likely to be a welcome move. The rate hike was earlier anticipated and expected to be in the indices price."

"The dominant theme in economic and market discussions these days is India’s resilience and outperformance in a weakening global economy and bearish equity markets. The RBI governor’s comments today is a reaffirmation of this ‘India resilient’ theme. It was this positive commentary on India’s growth impulses and projection of 7% GDP growth with 6.7% inflation for FY 23 that has come as a positive even while the policy announcements relating to rates were on totally expected lines. The Governor's confident statement that CAD can be financed comfortably even with crude at $100 for the rest of the year is reassuring. In brief the positive commentary is market positive."

Indian indices rose nearly 1 percent in morning deals on Friday after the RBI announced a 50bps rate hike in its monetary policy today, as expected by most analysts. The Sensex was up over 500 points at 56,916 while the Nifty rose 134 points to 16,952. The banking and fin services sectors jumped the most, up over 1.5 percent while Nifty Auto and Nifty realty also turned positive, up 0.3 percent and 0.8 percent, respectively. Nifty IT and Nifty Pharma were the only indices in the red.

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Forex reserve $537.5 billion as on Sep 23, compares favourably with most peer economies: Shaktikanta Das. He added that 67% of decline in FX reserves in FY23 on appreciating $, higher US bond yields. 

RBI Governor Shaktikanta Das announced that the central bank has decided to merge 28-day variable rate reverse repo operations with 14-day VRRR. Only 14-day VRRR auctions will continue going forward.

- -MPC was of the view that persistence of inflation necessitates further withdrawal of monetary accommodation.

-Inflation expected to reduce to 5% by April-June or Q1FY24.

-Risks from food inflation could have adverse impact on inflation.

-If high inflation is allowed to linger, it could lead to second round effects

- FDI improves to $18.9 billion in April-July vs $13.1 billion YoY

- External debt to GDP ratio and short-term debt to reserves indicate lower vulnerability.

- Will remain resolute to maintain stability.

- Services exports are likely to offset a higher trade deficit.

- Confident of meeting external financing requirements comfortably.

- Indian Rupee has depreciated 4% since April vs a 14% dollar appreciation

- Rupee has fared better than most global currencies against dollar

- RBI intervenes in the forex market to curb excessive volatility.

- RBI Forex reserves “umbrella” remains strong

- Could see a tapering of selling price increases going ahead, services activity showing a strong rebound

- High-frequency data indicates that the economy remains resilient

- Rural demand is gaining gradually, and investment demand picking up

- Inflation continues to be at alarmingly high levels across jurisdictions.

- Economic activity in India “remains stable.” It gives us the confidence to deal with the aggressive policies of other central banks

FY23 CPI inflation forecast mainatined at 6.7%

Real GDP for FY23 projected at 7%. RBI lowers FY23 GDP growth forecast to 7% from 7.2%

Recent correction in global commodity prices if sustained may ease cost pressures in coming months. Today inflation is hovering around 7% and we expect it to remain elevated at 6% in the second half of the year,

- 5 out of 6 members of the MPC voted unanimously to raise the repo rate by 50 bps

- SDF adjusted to 6.15% while MSF and bank rate also adjusted to 6.15% from 5.65%

- US Dollar strengthened rapidly to a 2-decade high

- World has witnesses 2 major shocks in 2.5 years - COVID-19 and Conflict in Ukraine

- World has been confronted with one crisis after another. Now in the middle of another storm of global monetary tightening.

RBI’s Monetary Policy Committee maintains Policy stance at ‘Withdrawal Of Accommodation’

In the last 5 months, Repo Rate saw an increase of 190 bps, from 4% In April to 5.90% currently.

RBI RAISES REPO RATE BY 50 BPS TO 5.9%

Indian benchmark indices were trading on a flat note ahead of the RBI Policy. Among rate-sensitive sectors, while the Nifty Bank and Nifty Fin Services were in the green, up 0.2 percent each; Nifty Auto and Nifty Realty were in the red, down 0.9 percent and 0.4 percent, respectively. 

"Most street participants are pencilling yet another 35-50 bps rate hike by RBI in upcoming policy meeting. A combination of weaker Q2 GDP print, higher CPI (surprised on upside in August at 7% YoY from 6.7%) & aggressive stance of FED to tame inflation is likely to force RBI to continue to front-load its policy actions. Even on the Currency Front USD/INR is testing life high levels of 81.66 as the  USD continues to gain strength against most major currencies. RBI has already sold over $ 90 bln of FX reserves over the last one year to about $545.6 billion its lowest level in the past 2 years. 

On the brighter side though even though Q2 GDP growth came in below expectations, consumption and investments remain strong, and high-frequency activity data also points towards strong consumption near the festive season. We believe that the softening commodity (-9%) and crude prices (-6%) would reflect in the RBIs policy decision during their Sep’22 meet. Given considerable uncertainty, we expect the MPC to remain ambiguous and data-dependent.

“We expect MPC to raise the repo rate by another 50bps. We expect rates to increase up to 6-6.25%. We maintain our growth and inflation forecasts. However, significant risks to both have emerged. While risks to growth are driven by a slowdown in global growth, risks to inflation are more domestic in nature. Deficient/untimely rains are estimated to have impacted the output of rice and pulses. While the government has announced a rice export ban, the final impact on inflation is yet to be seen."

"The fast-evolving world order and consistent repricing of the Fed’s outsized hikes are strong-arming the emerging markets (EMs). This exposes the instability inherent in the classic EM central bank trilemma: one cannot have a stable currency, unfettered capital flows, and independent monetary policy all at the same time.

This painful adjustment has not spared the RBI either, which is set to deliver another front-loaded 50bps hike this week. The net cost of supposed soft signalling via a shallow hike could be higher than a larger hike."

“The US fed seems to be on a roll with the pace and quantum of rate hikes. The US dollar has been steamrolling both emerging markets and developed markets currencies alike. Hence, despite no major adverse data points in India, RBI MPC May be tempted to deliver a 50 bps rate hike in the upcoming policy. Tone and texture of the guidance could be key for the markets. We could also see some small downward tweaks to GDP growth forecasts with CPI forecasts likely to remain unchanged,” said Iyer

There are a few economic aspects on which RBI is likely to focus upon:

1)RBI is likely to focus on skyrocketing domestic inflation rates and is concerned with aligning the tone with global actions.

2) RBI is also likely to take strict actions to control the situation of drying up liquidity issues due to global economic factors

3) We can expect a 50 bps rate hike, which is a fourth consecutive hike of the year.

"The market trend in the US and Europe continues to be bearish. Markets are increasingly discounting the likelihood of a US recession and a sharp slowdown in global growth in 2023. India too will be impacted by a sharp global growth slowdown but will be one of the least impacted since domestic growth impulses continue to be strong. Today’s MPC rate action - most likely a 50 bp rate hike - will not impact equity markets since this is already discounted by the market. In the near term, the market will be influenced by the Q2 results that will start coming soon."

The Reserve Bank of India (RBI) raised the repo rate by 50 bps to5.40 percent on August 5 for the third consecutive time and retained its stance of 'withdrawal of accommodation' to ensure that inflation remains under control. The Repo rate rose back to pre-pandemic levels after this hike, the highest since August 2019. 

The central bank had raised the repo rate by 40 bps in May and 50 bps each in June and August. The present rate is 5.4 percent.

The Reserve Bank of India (RBI) may take cues from its global counterparts, including the US Federal Reserve, to raise interest rate for the fourth time in a row on Friday to tame stubborn inflation. The RBI, which has since May raised the short-term lending rate (repo) by 140 basis points (bps), may again go for a 50-bps increase to take it to a three-year high of 5.9 percent, say experts.

The MPC, headed by RBI Governor Shaktikanta Das met during September 28-30. The decision will be announced today, (September 30).