RBI's continued pause on interest rate bodes well for India Inc

MUMBAI: The Reserve Bank's continued pause on the short-term lending rate at 6.5 per cent fares well for corporate India as the economic growth is estimated to clock a higher growth of 7 per cent this financial year, said experts. The RBI expectedly left its key lending rates unchanged for the fifth consecutive time and predicted faster growth in the world's fastest-growing major economy amid an uncertain outlook on inflation ahead of elections.

The Reserve Bank also raised its estimate for the GDP growth to 7 per cent for the fiscal from its earlier projection of 6.5 per cent.

Industry body Assocham said the RBI's continuing focus on disinflationary monetary policy retaining repo rate unchanged at 6.50 per cent is well-aligned with the intention of the Monetary Policy Committee (MPC) for an ecosystem favourable to a sustainable growth, which promises to be robust braving global headwinds.

''While inflation has been declining for the past few months, the RBI seems resolute in its target of taming it to its target of four per cent. It has so far kept a vigil eye on both global and domestic events for a stance that would bring more confidence to investors, borrowers and consumers as the focus of the credit policy remains on price and financial stability,'' Assocham Secretary General Deepak Sood said.

Anu Aggarwal, President and Head Corporate Banking at Kotak Mahindra Bank, said that the government's sustained efforts in driving an investment push in India, healthy corporate profits, and a reduction in banks' non-performing loans will keep investment buoyant despite elevated input costs.

''We also expect India's exports to perform well, propelled by performance in services exports. Fighting rising oil prices and inflation remains an ongoing concern due to several factors globally. However, the prolonged pause on repo rates will fare well for corporate India,'' Aggarwal said.

RBI retained the projection for consumer inflation at 5.4 per cent for 2023-24.

Expressing opinion on the announcements by RBI Governor Shaktikanta Das, Karthik Srinivasan, Senior Vice President, Group Head - Financial Sector Ratings, ICRA, said that given the 24X7 fund transfer facility available for customers, the banks face challenges on liquidity management over the weekend, when inter-bank markets are closed.

Hence, as a matter of prudence they end up borrowing three-day funds in the inter-bank market and MSF window over the weekend, he said, and added similarly, banks with surplus liquidity end up locking the funds for three days under SDF over the weekend.

''With the proposal to reverse these three days MSF and SDF facility, we expect the volatility in call money rates to reduce and the extent of balances used in MSF and SDF facilities over the weekend to also moderate,'' Srinivasan said.

Chairman of CII Delhi State Council and MD & CEO of Samtel Avionics Puneet Kaura opined that the RBI's decision to maintain interest rates bodes well for the Indian economy, which is experiencing robust growth.

''This move, beyond aiding interest-sensitive sectors like real estate and automobiles, will also significantly benefit manufacturing and the MSME sector. With inflation now under control within the RBI's target range, the possibility of future interest rate cuts appears more imminent,'' he said.

Mahesh Gupta, CMD, KENT RO Systems, said the RBI's commitment to controlling inflation remains crucial, safeguarding purchasing power and enhancing accessibility to new products for consumers.

''The adjusted GDP growth expectation, now projected from 6.5 to 7 per cent in FY 24, aligns well with the industry's aspirations. A robust economy, coupled with stable interest rates, holds the promise of elevating disposable incomes and bolstering consumer confidence,'' he said.

Rajeev Kapoor, MD of helmet company Steelbird, said that in light of the RBI's decision to maintain an unchanged repo rate, ''we remain optimistic about the prospects for the auto and automotive part industry''.

In his opinion, Rohit Arora, CEO and Co-founder of Biz2Credit and Biz2X, said the central bank's optimism is well-founded, considering factors such as heightened public sector capex, strong manufacturing capacity utilisation, and resilient domestic demand.

''The upward revision of the GDP forecast and the focus on the withdrawal of accommodation sets the stage for a collaborative journey towards sustainable economic growth,'' he said.

Dharmesh Shah, CEO of Hero Realty, said the RBI's decision is expected to have a positive impact on the real estate market, particularly in the housing sector, leading to a steady increase in property transactions. ''The growth trend in mid-income and premium housing transactions is likely to continue, while affordable and low-income housing, influenced by interest rates, may see a more cautious pace of activity,'' he said.

Commenting on the policy, Executive Director of Bharat Housing Network Madhusudan Sharma said the RBI, as expected, has kept the policy rates unchanged along with an optimistic growth forecast for the country, indicating the rate hike cycle has concluded, provided inflation remains in control. ''This will increase consumer confidence and boost home buying in the coming quarters,'' he added. Sanjay Agarwal, Founder, MD and CEO of AU Small Finance Bank, said that MPC's emphasis on keeping inflation target at 4 per cent in the long run demonstrates RBI's commitment to support sustainable growth while maintaining financial stability.

''RBI would continue to remain watchful and ready to act on evolving domestic and global developments as warranted,'' Agarwal said.

Nimesh Chandan, CIO, Bajaj Finserv Asset Management, said that India is clearly well-positioned compared to many other countries.

''RBI displayed a more balanced approach when it comes to liquidity. Compared to the last policy where the governor spoke about OMOs, this time he emphasised the risk of over-tightening,'' Chandan said.