RBI keeps key rates unchanged: Here's what Dalal Street experts say

The Reserve Bank of India (RBI) RBI Governor Shaktikanta Das-led six-member Monetary Policy Committee (MPC) voted unanimously to keep the repo rate unchanged at 4 per cent. The rate remained unchanged for the tenth time in a row. Also, the RBI kept the reverse repo rate unchanged at 3.35 per cent.
 
Equity benchmark Sensex jumped over 400 points after the RBI outcome. Sonam Srivastava, founder at Wright Research said that the RBI surprised on the Dovish side by leaving the repo and the reverse repo rates unchanged. Most economists projected that the reverse repo would be increased, and the stance would change from accommodative to neutral.
 
"Still, the governor has undoubtedly kept the outlook accommodative and supportive for growth. As a result, the bond yields have fallen, and the bond markets are rallying, leading to market profits for the banks and banking and housing finance companies rallying. There is a cheer from the market in all quarters right now, which is a big positive, but with all major global central banks turning neutral from dovish, market participants would closely monitor this move by the RBI to see if they are falling behind the curve," she added.
 
According to Abhay Agarwal, founder, and Fund Manager, Piper Serica, it is quite reassuring for stocks that RBI has continued with an accommodative stance and kept the inflation estimate at its current level.
 
He noted that it was highly expected that the reverse repo rate at least will be increased to reduce excessive liquidity but that has also been left at 3.35 per cent. RBI is more focused on protecting the nascent recovery rather than on increasing rates. This will fray a lot of nerves and will cool down the bond yields.
 
"The interest-rate-sensitive stocks like banks, real estate, and autos will be the biggest beneficiaries. Overall very positive in an environment where rates are rising globally. With the omicron worry also behind us, we expect that some kind of reverse taper tantrum will play out in the Indian stock market," he added.
 
Jyoti Roy, DVP- Equity Strategist, Angel One Ltd said that the RBIs decision not to hike reverse repo rates and keep an accommodative stance surprised the markets as the RBI was largely expected to change its stance to neutral. While the RBIs decisions came as a pleasant surprise for the markets, concerns remain over-aggressive Fed tightening, large government borrowings along with upside risks to inflation due to high commodity and crude prices," she added.

Manoj Dalmia, Founder and Director, Proficient Equities Limited said that the rates have remained almost unchanged for the past 10 sessions.The reverse repo rate is unchanged at 3.35% but it was expected that there would be a change of 15-40 bps to support the budget decision for growth. Increasing Reverse Repo usually signals that the RBI is ready to pull out excess liquidity, it can be said that it's being done through Variable Rate Reverse Repo.

"A key reason to keep the policy interest rate at historic lows longer is to spur a more durable rebound in private consumption. India did not massively boost monetary growth during the worst phase of the pandemic (as the US Fed, ECB and BoE did), so there is less need for the RBI to roll back monetary accommodation this year," said Mr. Prasenjit K. Basu, Chief Economist, ICICI Securities.

"As the strong rabi crop boosts food supply in April-June, and other supply disruptions from the third Wave of the pandemic recede, India’s CPI inflation will moderate, allowing policy rates to remain low for longer than in the developed world. That will provide a boost to equity valuations, and help spur a broad-based recovery in consumption and investment," he added.

The benchmark indices opened higher ahead of the MPC meeting outcome. At 09:16 hours, the 30-share BSE index was trading 242 points higher at 58,708.17, and the broader NSE Nifty was up 49 points to 17,512.50.