In that context and especially in the context of the failure of SVB Bank in San Francisco, the 16th largest Bank in the US, the current policy outcome of a pause in rate hike sounds to be very apt.
The Indian banking system remained sound and healthy during the current phase of extreme global uncertainties.
The global economy is now confronted with serious financial stability challenges arising from the recent liquidity crisis in the banking sector in some advanced economies.
In India, the focus of RBI as a regulator for the financial sector is now more on identifying the root cause of vulnerabilities, rather than dealing with the current situation.
RBI also acknowledges that the Indian banking system remains sound and healthy, with strong capital and liquidity positions, improving asset quality, better provisioning coverage along with improved profitability.
The Indian regulator remains committed to keeping a close eye on asset-liability mismatch amid rising interest rates.RBI believes that the impact of 250 bps repo rate hikes in the last 11 months is still playing out and will help to keep inflation under control. Overall, the policy outcome is supportive of growth.
The central bank has continued to maintain its earlier stance of – “Withdrawal of accommodation while supporting growth”.
The Monetary Policy Committee (MPC) has decided to remain focused on the calibrated withdrawal of accommodation to ensure that inflation progressively aligns with target without hampering growth.
The recent war between Russia & Ukraine led to inflationary conditions across the globe due to rising oil & commodity prices & higher logistic costs.
To control these inflationary conditions, advanced countries started raising interest rates after a long period of very low-interest rates.
India was also not excluded from these inflationary pressures. RBI had also to start by raising interest rates in line with global central bankers to control Inflationary pressures which impact the overall population of the country.
Growth:
The full-year GDP growth estimate for FY24 is revised to 6.5% from an earlier estimate of 6.4% RBI noted that India’s growth remains resilient as reflected in healthy expansion in industrial activities like IIP, growth in core industries, etc. along with robust services activities visible in passenger traffic, e-way bills, toll collections, port freight traffic, etc.
PMIs also point towards sustained expansion in both manufacturing and services sectors. RBI marginally revised its growth forecast in view of sustained buoyancy in intensive consumption, government thrust on capex, robust credit growth, expectations of record rabi crop, moderation in commodity prices supporting the manufacturing sector, etc.
RBI governor in its statement highlighted that it is the “pause for this meeting” and it should not be construed as pivot. The minor tweak in the language of stance possibly reflects the RBI’s resolve to bring down the inflation towards its target of 4%.
All in all, it is a prudent policy. India still remains to be one of the fastest-growing economies in the world and will continue to be an attractive destination for global investors. Debt as an asset class looks equally lucrative now.
(The author is Director – Arihant Capital Markets Ltd)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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