RBI will likely maintain there position on interest rate: Experts

Even though the Reserve Bank of India (RBI) did not change the interest rates, those who are looking for a fall in the repo rate, which is the interest paid by banks for the cash borrowed from the central bank, are not likely to be pleased by the indications that are emerging. This is because the repo rate is the interest paid by banks for the cash borrowed from the central bank.

Many specialists in the business are of the view that the increased emphasis on reducing inflation down to the RBI’s target of 4 percent may mean that any rate reduction, if it is to come at all, would occur later than the majority of people had anticipated up to this point in time. This is because the majority of people anticipated that any rate reduction would take place sooner.

In an interview with CNBC-TV18, the Chief Economist of Deutsche Bank, Kaushik Das, said that those who  expected the commencement of the rate drop to begin in October would be left disappointed. Das’s comments came as a response to a question about when the rate decrease would begin. The Reserve Bank of India (RBI) projects a growth rate of 6.5 percent for this year, which is higher than the widespread consensus of 6 percent. However, if RBI’s estimates come true, the time for a rate reduction will be pushed back, and it is possible that RBI won’t begin cutting interest rates until April of the following year. If the RBI’s projections come true, the timing for a rate reduction will be pushed back. “For the time being, we are in the midst of a protracted and extended pause,” he remarked. “For the time being.”

In addition to Das, there are others. Even Amandeep Chopra, Group President and Head-Fixed Income, UTI MF, and Ashwini Kumar Tewari, MD-Risk Compliance & Sarg, at the State Bank of India, were of the view that the earliest one can expect a decline in benchmark lending rates by the RBI is February 2024. This is because they believe that the RBI will not be able to maintain its current level of liquidity for very long. This is due to the fact that they hold the opinion that the RBI needs to amass further information before reaching a judgement.

When calculating the interest rates that will be applied to bank loans, repo rates are used as a benchmark. These rates are used for loans ranging from mortgages to automobiles and even loans for businesses. As a result, the Reserve Bank of India (RBI) would have to be the one to take the initiative to reduce the interest rates charged by banks.

The prudent comment was prompted by Governor Das, who, in his lecture after the most recent monetary policy review, said that it is vital to maintain “Arjuna’s eye” on inflation. This statement was the impetus for the cautious remark. This declaration served as an incentive for the statements that emphasised caution. There is a narrative from the Mahabharata, which is a section of Indian mythology, that is being referred to here. The capacity of this story’s protagonist, Arjuna, to hit his target has become a standard for steadfastness, concentration, and good marksmanship over the course of the narrative.

The fact that Das has frequently cited the objective of 4 percent for retail inflation while at the same time failing to underline the 2 percent wiggle space (i.e., up to 6%) that the inflation targeting framework affords him is being interpreted as a hint that the Reserve Bank of India is becoming more hawkish than the market had anticipated. This is because Das has failed to underline the 2 percent wiggle room that the inflation targeting framework affords him.

As a direct result of the Governor of the RBI’s remarks, the euphoria that existed in the Indian equity markets in the morning gave way to a sell-off in the afternoon. This occurred because of the statements.

After hitting their respective daily high points, the Nifty 50 and the Sensex both saw substantial drops in value. The Nifty Bank index, which follows the performance of the nation’s major financial businesses, was trading more than 200 points lower than it had been earlier in the day. This was a significant drop from its level earlier in the day. The index has been moving in the direction of surpassing its all-time high point. Real estate stock values, which are highly sensitive to variations in interest rates for loans, took a significant hit as a result of the shift.