As rate increases earlier this week stunned investors in Canada and Australia, and Reserve Bank of India (RBI) Gov. Shaktikanta Das delivered a predictable policy by pushing the pause button for a second time, investors on Dalal Street were somewhat let down when the RBI’s rate-setting panel MPC decided to maintain its stance of “withdrawal of accommodation.”
“It looks like the market wait for rate cuts just got longer, as we saw Canada policymakers announce a surprise rate hike,” Lakshmi Iyer, CEO, investment and strategy, Kotak Investment Advisors, said, according to The Economic Times. “Key incoming data dependency will continue to be the order of the day. Policymaker guardrails remain. Bonds may continue its sideways movement and continue to track global bond yields, specifically U.S. treasuries.”
By noon, the Sensex and Nifty had given up all of their morning gains and were trading flat as market players realized that the wait for rate cuts is growing longer as long as inflation is above the 4% target and amid macroeconomic challenges on a global scale, The Economic Times reported.
The RBI estimated the recent broad-based drop in inflation while also factoring in potential upside risks, principally related to El Nino's occurrence and its effects on the monsoon, according to The Economic Times. The FY24 growth prediction is 6.5%, but the inflation forecast has been cut by 10 basis points to 5.1%. The RBI MPC meeting was widely regarded as a non-event; therefore attention is now being paid to international markets, upcoming U.S. data and Fed policy. Technically, Santosh Meena, head of research, Swastika Investmart, stated that Nifty is attempting to go toward its all-time high of 18888, where 18660 will be immediate support.
According to the RBI’s estimated 6.5% GDP growth and 5.10% inflation for FY 24, India is in a good place, The Economic Times reported. The RBI made the appropriate decision by maintaining the monetary policy stance as “withdrawal of accommodation” given that global central banks are still in the process of raising interest rates and that the future course of the Fed Fund rate remains uncertain. By August 2023, RBI will have greater knowledge about the impact of El Nino on inflation and the direction of the Fed Fund rate, and it will be able to switch the stance of its monetary policy to “neutral.”
