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Economists see short-term upside risks


The Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday voted unanimously to keep the repo rate – the key rate at which it lends short-term funds to commercial banks – unchanged on April 8. The RBI raised its consumer inflation projections. for FY23 and lowered its GDP growth estimates. He rewrote his position as “less accommodating” from “accommodating”.

Regarding inflation, MPC said that assuming a normal monsoon in 2022 and an average crude oil price of US$100 per barrel, inflation is now projected at 5.7% in 2022- 23.

Upasna Bhardwaj, senior economist at Kotak Mahindra Bank, said the second-quarter estimates look grossly understated by RBI at 5%.

“Our first half figure is averaging around 6.4%. So that’s the huge deviation I see from RBI’s estimates. Clearly there are short-term upside risks and the pass-through of the higher input prices has to pass somewhere so I see an upside but I would say there is now that the RBI estimates are relatively more realistic there could be a base of 10 to 20 for the numbers, but they’re relatively on board now compared to where they were in February politics.”

Indranil Pan, Chief Economist of Yes Bank said: “We cannot kind of hold RBI hostage whether the trajectory is correct or not, they have taken an assumption of $100 a barrel. If the war scenario ends and there is some kind of stability in the financial markets, we may see lower levels of inflation than expected.

The RBI has revised India’s real gross domestic product (GDP) growth rate to 7.2% from 7.8% in February for FY23. MPC, RBI Governor Shaktikanta Das said escalating geopolitical tensions had prompted lower expectations for GDP growth.

Regarding the Permanent Deposit Facility (SDF), RBI said that by removing the binding collateral constraint on the central bank, the SDF strengthens the framework for the operation of monetary policy. As a result, it has now been decided to introduce the SDF as the floor of the LAF hallway

Amandeep Chopra, Group Chairman and Hd-Fixed Income at UTI MF, said: “I must point out that the reverse repo rate is still at 3.35. What RBI basically did was they introduced this new element of SDF, which they fixed at 3.75 overnight and that in reference to the repo rate, which they still treat as their rate director. So 3.75 to 25 basis points below the repo rate and they used the marginal standing facility (MSF) at the upper end of the corridor as something that is available on demand.

Regarding the deposit rate, Rajiv Anand, EC at Axis Bank, said: “I think deposit rates have already increased. If you look at it, before March 31, maybe retail deposit rates haven’t budged. But if you look at non-retail term deposits, especially LCR-friendly deposits, and more importantly, CD rates, they’ve risen by something between 25 and 50 basis points, before March 31 it -same. I think this normalization of deposit rates will continue and ultimately banking is a marginal cost business if deposit rates go up.

(Edited by : Abhishek Jha)


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