RBI MPC Preview: Status Quo To Continue, Quasi Rate Cut Could Be On The Anvil
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RBI Monetary Policy: Central Bank Likely To Surprise With 25 Basis Point Rate Cut, Says Nomura
The India Rupee opened stronger ahead of the Reserve Bank of India's monetary policy decision that will be announced shortly by Governor Shaktikanta Das.
The domestic currency strengthened 7 paise to 84.66 against the dollar, according to Bloomberg data. The rupee closed at 84.73 against the greenback on Thursday.
Of the 25 economists polled by Bloomberg, 21 expect the MPC to maintain the status quo for the eleventh straight meeting. The benchmark lending rate, or the repo rate, is expected to remain unchanged at 6.5%.
The Rupee could gain support from the RBI’s efforts to manage liquidity in the banking system, according to Amit Pabari, managing director, CR Forex Advisors. "We anticipate the Rupee’s downside to remain capped at 85, with the USDINR pair expected to trade within the range of 84.50 to 85 in the short term."
The Indian rupee is expected to open a tad stronger after the Central Bank sold dollars at 84.75 levels and ensured it stayed in the range of 84.70 to 84.75, Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP, said. "As the RBI announces policy rates amidst acweaker currency and stronger markets the range for rupee is expected between 84.60-84.80."
The dollar index—which tracks the greenback's performance against a basket of 10 leading global currencies—was trading 0.07% higher at 105.78.
International benchmark Brent oil was priced 0.15% down at $71.98 per barrel after US imposed more sanctions on Iranian crude. West Texas Intermediate was up 0.09% higher at $68.24 a barrel.
The yield on the 10-year bond opened flat at 6.68%.
It closed at 6.68% on Thursday.
Source: Bloomberg
India will most likely see a rate cut but will "definitely" see a cut in the cash reserve ratio, according to Jahangir Aziz, Head-Emerging Market Economics at JPMorgan.
Consumption is growing on significant income transferred promised by state governments, he told NDTV Profit in an interview. "Consumption isn't weak in India, real income is weak."
India's central bank will do what is important for India, not necessarily follow US Fed he said adding that almost all central banks who've met in the last two to three weeks have cut rates.
Cutting rates right now could spike inflation while RBI is struggling to stabilize exchange rate, he said. A lot of liquidity has been taken out of the markets, he added.
Cash Reserve Ratio is the specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.
Stock Market Live: Nifty, Sensex Open With Marginal Gains Before MPC Policy Decision
The Reserve Bank of India is seen holding its repo rate for the eleventh straight meeting in December and brokerages do not expect a rate cut until February. However, they expect the regulator bank to act towards liquidity easing through unconventional policy tools.
BofA's report said that despite seeing a very weak GDP growth print, the RBI appears set to be on hold, but the MPC decision could be more contested than previous meetings, with more than one members voting for a rate cut.
Emkay Research said the massive GDP undershoot has meant that the policy trade-offs have become even more acute as the economy looks to be in a stagflationary state.
The brokerage also expects a CRR reversal to pre-Covid 4% level, implying an infusion of Rs 1.2 lakh crore at a time when core liquidity may steadily move to a deficit ahead with unsterilised forex intervention and CIC leakages.
Read more here.
Governor @DasShaktikanta arrives at @RBI headquarters ahead of MPC decision.
— NDTV Profit (@NDTVProfitIndia) December 6, 2024
Read live #RBIPolicy updates: https://t.co/CX2OToFgpx pic.twitter.com/a4q5sHQ5Cs
Monetary policy is important as it affects every segment of economy and MPC's effort is to follow a flexible inflation target framework, says Governor Shaktikanta Das.
Governor says:
Monetary policy affects vegetable vendors, the middle class, big corporates.
MPC effort is to follow a flexible inflation target framework.
India has been growing at more than 8%.
It is always the effort of RBI, and MPC to follow the provision of law in letter and spirit.
Price stability is of paramount importance.
RBI Monetary Policy: MPC Keeps Repo Rate Unchanged, GDP Growth Forecast, CRR Cut
The Monetary Policy Committee believes that only with durable price stability can strong foundations be secured for high growth, Reserve Bank of India's Governor Shaktikanta Das said in the press conference. The MPC decided to maintain the repo rate at 6.5% for the eleventh time with a 4:2 majority.
Governor says:
Inflation surged above the upper tolerance band in October.
Food inflation is likely to linger in third quarter and start easing in fourth quarter.
High inflation reduces disposable income in hands of consumers, dents private consumption.
Lower consumption impacts real GDP growth
MPC remains committed to retaining an inflation-growth balance in overall interest of economy.
Reserve Bank of India has cut the real GDP growth for the ongoing fiscal year to 6.6% from 7.2% earlier, according to Reserve Bank of India's Governor Shaktikanta Das.
The central bank sees GDP growth in the third and fourth quarters at 6.8% and 7.2%, respectively. The growth is projected to be 6.9% in the first quarter of fiscal 2026 and 7.3% in the second quarter of the next fiscal.
Governor Shaktikanta Das said that the Reserve Bank of India sees India to record a CPI inflation of 4.8% in the ongoing fiscal year, according to to Reserve Bank of India's Governor Shaktikanta Das.
The CPI is seen at 5.7% and 4.5% in the final two quarter in the ongoing financial year while it is seen at 4.6% and 4% in the first and second quarter of the next financial year.
The Cash Reserve Ratio was cut by the Reserve Bank of India by 50 basis points to 4% to all banks in order to revive the economic growth by improving liquidity.
The CRR will be cut in two tranches in fortnights beginning Dec. 14 and Dec 28 by 25 basis points each, Governor Shaktikanta Das said. CRR cut to result in liquidity increase of Rs 1.16 lakh crore.
Cash Reserve Ratio is the specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.
The Reserve Bank of India's exchange rate policy has remained consistent and is market-determined, Reserve Bank of India's Governor Shaktikanta Das said in a press conference after maintaining status quo on repo rates.
Governor says,
Foreign exchange reserves are deployed judiciously.
Efforts to deepen, and modernise the forex market have yielded significant results.
The overall approach ensures forex acts as shock absorbers.
Flexible or market-determined exchange rate regime is important element to ensure market, macro stability.
The financial parameters of banks and financial institutions continue to be strong and the financial sector health is at "one of its best in a long time," Reserve Bank of India's Governor Shaktikanta Das said in a press conference.
Governor says,
The health of financial sector is perhaps at one of its best in a long time
RBI's supervision of the financial sector continues to be vigilant, proactive.
Continuous engagement is held over several months with regulated entities.
Only in extreme cases, RBI resorts to the imposition of business restrictions as a last resort.
There are a large number of entities where corrective action is taken.
To address issues of unclaimed deposits, and frozen accounts due to KYC issues, banks advised to take necessary steps.
India's merchandise exports expanded at 28-month high in October and continue to remain resilient, Reserve Bank of India's Governor Shaktikanta Das said in a press conference. Services exports sustained buoyancy in the second quarter, he said.
Governor says,
Current account deficit to remain within sustainable limits in fiscal 2025.
Gross FDI to India increased at robust pace in first half of fiscal 2025.
Foreign portfolio investment inflows to emerging markets have generally declined in October.
India's external sector remains resilient.
In order to attract more capital inflows it has been decided to increase interest rate ceilings on FCNRB deposits.
Banks permitted to raise funds via 1-year FCNRB deposits at 400 bps above overnight Alternative Reference Rate versus 250 bps now.
RBI Increases FCNRB Deposit Rate Ceilings To Attract More Capital Inflows
The Reserve Bank of India proposed to add podcasts to its communication toolkit, Governor Shaktikanta Das said during the monetary policy announcement.
Governor says,
Financial sector landscape is witnessing rapid transformation using new technology.
themulehunter.ai has been developed by RBI to hunt "mule accounts", reduce digital fraud.
RBI Monetary Policy: From Repo Rate To GDP Target And CRR, Five Key MPC Highlights Today
RBI Increases Bank Limits For Collateral-Free Agri Loans To Rs 2 Lakh
The Reserve Bank of India has encouraged banks to collaborate with its subsidiary Reserve Bank Innovation Hub on its new initiative--MuleHunter.AITM--to detect mule accounts, a pilot being run based on artificial intelligence and machine learning model, Governor Shaktikanta Das said.
This model enables detection of mule bank accounts in an efficient manner and a pilot with two large public sector banks has yielded encouraging results, according to the statement on developmental and regulatory policies.
The Reserve Bank of India's Monetary Policy Committee is unlikely to cut repo rates by more than 50 basis points in the current rate-cutting cycle, according to Rajiv Anand, Deputy Managing Director at Axis Bank.
The CRR cut will positively impact margins of banks by three to five basis from the fourth quarter of this fiscal, Anand said adding that its a "welcome relief" that should help credit growth. "Expect 4% inflation by February and the rate cut cycle will be very shallow."
Rajiv Anand Says,
RBI has kept their eye on inflation, which is the prudent thing to do.
CRR cut will bring down deposit rates.
Expect short-term rates to come down.
Repo rate cut has been pushed, which is prudent.
Palpable slowdown in the economy is visible.
RBI Monetary Policy: What Does A CRR Cut Mean?
Governor Shaktikanta Das starts the presser saying he has five observations.
MPC remains committed to restoring balance between inflation, growth, which has got unsettled recently.
RBI will use various policy instruments to create conditions for restoring inflation-growth balance.
Credibility of inflation-targeting framework needs to be preserved.
Inflation has to be brought down in the interest of sustainable growth.
Prudence, practicality and timing will continue to be guiding principles for RBI's future actions.
Addressing the press, Das noted that, "Timing of actions is the key," and that the second half of the financial year will be better in terms of growth. Actions like rate cuts and liquidity measures need to be well-timed, he added.
"Actions like rate cuts and liquidity measures need to be well-timed," the RBI Governor said.
The Governor declined to comment and said, "I am not giving you any headlines today,"
In the previous MPC, Governor Das had compared inflation to a horse ready to bolt. He answered today saying, "Horse has made a very valiant effort to bolt; our attempt is to keep it on a tight leash."
Our effort is always to follow the legal mandate given to us on inflation and growth, he added.
JP Morgan views India's MPC decision to hold rates as dovish, with a 50 bps CRR cut that "opens door" to a February rate cut, contingent on inflation tracking the RBI's projections.
A rate cut would be unlikely if RBI raises its inflation forecast at the same time. JP Morgan sees modest downside risks to the 6.6% GDP growth forecast, with the RBI likely to act on growth once more confident in CPI trends. The CRR cut will release Rs 1.16 trillion in durable liquidity into the system.
In the life of a central bank, there is no room for knee-jerk reactions, Governor Shaktikanta Das in a press conference with reporters after keeping the key benchmark rates unchanged. The RBI expects tight liquidity in the remainder of the financial year, he said.
Governor says,
Our effort is always to follow the legal mandate given to us on inflation and growth.
We need more credible evidence on what the outlook is likely to be.
Whatever action we take must be well-timed.
I think we have managed to remain in-line with the curve on monetary policy
The CRR increase was done in April 2022 as a temporary measure, Governor Das said adding that it has "served its purpose and it was time to normalise it."
The central bank slashed the cash reserve ratio by 50 basis points to 4% to all banks in order to revive economic growth by improving liquidity.
Governor says,
What the banks use the CRR money for is their call.
We clearly see that liquidity is going to be tight in the latter part of December and going into January.
We don't make monetary policy or liquidity decisions keeping in mind the balance sheet requirements of banks.
The BRICS currency was an idea that was raised by one of the member countries and "no decision" has been taken on the same, Governor Shaktikanta Das in a press conference with reporters after keeping the key benchmark rates unchanged.
His comments come after US President-elect Donal Trump warned BRICS nations that he would require commitments that they would not move to create a new currency as an alternative to using the US dollar and repeated threats to levy a 100% tariff.
Governor says,
There is no step that we have taken with the intention of de-dollarisation.
We have permitted the opening of Vostro accounts and entered agreements with two countries for local currency trade.
De-dollarisation is not on the table at all; rather it is a narrative in certain sections.
Even if the US increases tariffs, it won't be an isolated event.
Difficult to say what the unilateral move would be in response to higher US tariffs.
India's foreign exchange reserves are "quite robust" and the depletion of reserves is because of valuation losses, Governor Shaktikanta Das in a press conference with reporters.
Governor says,
Forex reserves are quite adequate currently.
How the forex market will behave can't be assessed; there are so many uncertainties.
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