RBI begins three-day monetary policy meeting, outcome on Oct 6; rate sensitive sectors down | Mint – Mint

Despite widespread expectations that the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) would maintain the current interest rates and policy stance, rate-sensitive sectors such as banking, automobile, and real estate experienced significant losses during intraday trading on Wednesday, October 4th.

The three-day meeting of the RBI MPC started on Wednesday and its outcome is due on Friday (October 6).

Nifty Bank, Private Bank, PSU Bank, Auto and Realty indices fell over a per cent each in intraday trade on Wednesday while the equity benchmark Nifty 50 declined almost by a per cent.

Market participants appear to be cautious ahead of the RBI MPC meeting outcome. Besides, sharp gains in the US Treasury yields and dollar have also hit market sentiment. Foreign capital outflow is another factor that is weighing on market sentiment.

NSDL data show foreign institutional investors (FIIs) sold Indian equities worth ₹14,768 crore in September and ₹2,868 crore in October so far.

Also Read: Nifty 50, Sensex drop over half a percent each: Five key reasons for the market fall – explained

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RBI likely to maintain status quo

Experts expect the central bank to keep rates unchanged and maintain its hawkish policy stance on October 6.

“The RBI will have little reason to change the current policy settings, and we expect the MPC to keep the repo rate unchanged at 6.5 per cent at the October 6 meeting, flagging waning core inflation, steady economic activity, and some risks of more supply-related price shocks, providing a little cue for a change in policy thinking,” Barclays said in a note.

Also Read: RBI monetary policy: Central bank likely to hold interest rates, policy stance-Barclays

Madan Sabnavis, Chief Economist at Bank of Baroda also expects the RBI to hold on to a status quo position this time as inflation is still high and liquidity tight.

“Going by RBI forecast on inflation, it would be above 5 per cent in Q3 too, which will ensure that the status quo prevails for the calendar year for sure and probably Q4 too,” said Sabnavis.

Also Read: RBI likely to maintain status quo on policy rates as inflation still high: Experts

RBI’s primary goal is to bring inflation down but it also would not want to damage India’s economic growth.

Experts pointed out that domestic inflation spiked to 7.4 per cent in July and fell back to 6.8 per cent in August and possibly will move towards 5.5 per cent by December. However, it remains well above the 4 per cent target and will likely remain so for at least a few more quarters.

“With growth remaining steady, the RBI will prefer to stay watchful of the risks from the external sector and inflation. The MPC will keep the repo rate at 6.5 per cent with the stance retained at the withdrawal of accommodation. The RBI will aim to keep external risks at bay by acting on liquidity and forex and bond market interventions,” Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities, wrote for Mint.

Also Read: RBI monetary policy starts. Here are risks that the central bank must keep in mind

Infomerics Ratings, a credit rating agency, believes with sticky retail inflation and the US Fed’s persisting hawkish stance, the RBI is likely to keep the Repo Rate unchanged for the fourth successive time.

“The global situation is challenging because of shifting global trade dynamics, incipient global demand, commodity price fluctuations, pandemic recovery, and geopolitics. Geopolitics is marked by high inflation, deteriorating financial conditions, the Russia-Ukraine war, and growing economic fragmentation. The financial system is constrained by higher inflation, rising interest rates, and stress in financial markets,” Infomerics Ratings observed.

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