New Delhi [India], December 7 (ANI): State Bank of India Chairman Dinesh Khara said the Reserve Bank of India policy statement is nuanced, nimble, forward-looking and ensures a fine-balancing tradeoff between growth and inflation. He also said a marginal downward revision in growth estimates reveal that the only certainty in the current environment is uncertainty.
The Chairman of the country's largest bank said, "A visible improvement in consumer and business confidence as per RBI surveys augurs well for the future growth outlook. Imparting operational flexibility to banks in managing their investment in HTM (Held to Maturity) limit will have an orderly impact on domestic yields. The steps to augment the payment infrastructure will ensure a continued traction on digital front."
Abheek Barua, Chief Economist and Executive Vice-President, HDFC Bank, on Wednesday said, "The RBI policy announcement today (Wednesday) was in line with expectations in terms of raising the policy rate by 35bps and keeping the policy stance unchanged. However, the policy tone was distinctly more hawkish than expected."
Abheek Barua said when a central bank combines its sanguine view on growth with continued concerns on inflation - particularly the persistence in core inflation - it suggests that it is prepared to continue its fight against inflation and has the space and willingness to raise rates further.
"The central bank emphasised that it is not ready to let up its inflation battle and aims to bring down inflation below 6 per cent in the near term and then closer to 4 per cent over the medium term," he added.
Abheek Barua said there were other signs in the governor's statement that suggested that tightness in financial conditions could intensify, going forward. "While the RBI continued to reiterate that it would continue to manage liquidity conditions through fine-tuning operations it cautioned markets to wean themselves off the surplus liquidity overhang and not take it for granted," he said.
Barua said, "Today's policy announcement does provide a soft support for the rupee ahead of the Fed meeting next week and can be viewed perhaps as an attempt by the RBI to continue aligning itself with the still hawkish G7 central banks."
He said furthermore, the RBI's continued emphasis on the factors, that lend support to the rupee, signals its preference for a stable rupee going forward implying intervention on both sides of the market to keep it range bound into 2023.
"In terms of forecasts, GDP (gross domestic growth) growth was revised down marginally by 20 bps to 6.8 per cent for FY23 (current fiscal), although the central bank showed comfort around the current growth momentum. On inflation, the full year figures were kept unchanged at 6.7 per cent. Bottom line is the policy announcement today signalled that more rate hikes are in the offing. We expect the terminal rate to be close 6.5-6.75 per cent," Barua said.
Kotak Mahindra Bank Group President and Head for Consumer Bank Virat Diwanji said, "With a hike in repo rates by 35 basis points - breaking its cycle of 50 bps hikes - the Reserve Bank has left much room for future monetary intervention as well as global inflationary factors to improve."
He said breaking the stickiness in core inflation is the single target for the immediate quarters as the central bank expects booming consumption to sustain the economic growth, now revised to 6.8 per cent.
"There will be plenty of data points before the MPC by February including the direction of US Fed (Federal Reserve) rates, December inflation and growth in credit. If the market was wondering whether it was hawkish or dovish, we believe the bank remains hawkish for a growth but with stability," Virat Diwanji said.
In a statement from Bank of Baroda, the lender said, "There was no real surprise with 35 bps indicating that fight against inflation is not yet over but there is hope of downward trajectory in future. Therefore not 25 or 50 bps but something in-between was opted for this time. We believe that given the RBI trajectory of inflation in (third quarter) Q3 and (fourth quarter) Q4 there will be one more rate hike in February of 25 bps bringing the terminal rate to 6.5 per cent."
The lender also added, "Growth projections lower at 6.8 per cent and while the magnitude is marginal, it still indicates resilience of the economy on balance. These are relevant observations given that World Bank has scaled up projections just yesterday." (ANI)