RBI KEEPS EYE ON INFLATION

The BSE was meandering up somewhere by 45 points and as the Governor started speaking, it rose 65 points, fell a bit and once the policy was announced, the market was up 54 points; the flat market reaction clearly indicating that the market had discounted this decision.

As was widely expected, the RBI announced a 35 bps rate hike in repo rate, which now stands at 6.25%. The stance remained accommodative. 4 out of 6 members decided to remain focused on withdrawal of accommodation.

India's retail inflation in the month of October stood at 6.77% v/s 7.79% in September. This softening of inflation is what curbed the earlier aggression shown till now in rate hikes.

Till now the RBI has hiked rates by a total of 225 bps – 40 bps in May, 50 bps each in June, August, September and the current 35 bps hike.

The overall tone of the Governor was hawkish, mainly on the pressures expected from global economic scenario. On the domestic front, Governor said, “RBI will keep an Arjuna eye on the inflation” meaning that curbing inflation will remain a priority as it remains a problem; RBI will monitor the constant incoming date and act as and when necessary.

Its estimates on CPI projects exactly this:

• FY23 CPI projected at 6.7%
• Q3FY23 CPI estimated at 6.6%
• Q4FY23 CPI estimated at 5.9%
• Q1FY24 CPI estimated at 5%
• Q2FY24 CPI estimated at 5.4%

On the growth front, RBI feels that India’s growth remains resilient and despite the rest of the world slowing down, we remain the fastest growing economy in the world. Yet, keeping the talks of world recession in mind and expected rising crude prices – RBI expects average crude price at $100 in FY23; b, based on all this, RBI has moderated the GDP estimates:

• FY23 real GDP growth at 6.8% v/s 7% projected earlier
• Q3FY23 real GDP estimated at 4.4%
• Q4FY23 real GDP estimated at 4.2%
• Q1FY24 real GDP estimated at 7.1%
• Q2FY24 real GDP estimated at 5.9%

RBI stated that there is really no worry on money being sucked out of the economy with these consistent hikes - system liquidity remains in surplus with average daily absorption under LAF of Rs 1.6 lakh crore.

Under the current circumstances, this is the best move which RBI could have made and we need to take recourse on that. Just as RBI remained overall optimistic about the Indian growth story, we too need to our heads over the clouds and not fall for all the recessionary talks – our domestic power in itself is huge and that should be a good factor to keep our focus on.

The good news – FDs are once again back in fashion and this is something which the senior citizens will have something to cheer about.