RBI Policy Meet: Quick takeaways

08th February 2023

The Reserve Bank of India (RBI) Policy Meet outcome – Repo rate hiked by 25 bps; Remain focused on the calibrated
withdrawal of accommodative stance; GDP growth outlook projection revised upwards for FY23 while inflation forecast is
lowered for FY23; Overall, the policy is in line with market estimates and upward revision in GDP growth outlook and lower
projection for inflation for FY23 are key positives.
The RBI, in its 6th bi-monthly MPC meeting of FY22-23 has raised the Repo rate by 25 bps to 6.5%. This is the 6th round of
consecutive rate hike since 4th May 2022. The FY23 real GDP growth outlook is revised upwards by 20 bps to 7.0% while the
inflation forecast is lowered by 20 bps to 6.5%.

 Key highlights of RBI policy outcome are:-

Repo rate hiked by 25 bps to 6.5%:
Repo rate hiked by 25 bps to 6.5% from earlier 6.25%. Consequently, Marginal Standing Facility (MSF) rate stands adjusted to
6.75% from earlier 6.50%. SDF rate is also now revised to 6.25%.
FY23 real GDP growth forecast revised upwards by 20 bps to 7.0%:
Real GDP growth for FY23 has been revised upwards by 20 bps to 7.0%. The real GDP growth rate for FY24 is projected at 6.4%
with 1QFY24, 2QFY24, 3QFY24 and 4QFY24 real GDP growth estimated at 7.8%, 6.2%, 6.0% and 5.8% respectively. The 20 bps
higher growth projection for FY23 is on the back of broad based credit growth, improving capacity utilisation, and government’s
thrust on capital spending and infrastructure. However, the ongoing geopolitical tensions, tightening global financial conditions
and slowing external demand continues as downside risks to the domestic output.
Inflation forecast for FY23 lowered by 20 bps to 6.5%; Inflation expected to moderate in FY24 but is likely to rule above the
4% target:
The commitment of fiscal consolidation in the Union Budget 2023-24 and the future trajectory of reducing the gross fiscal
deficit will lead to macroeconomic stability auguring well for the inflation. Thus, the RBI has lowered its FY23 and 4QFY23
inflation forecast by 20 bps each to 6.5% and 5.7% respectively. On the assumption of a normal monsoon, the inflation rate for
FY24, 1QFY24, 2QFY24, 3QFY24 and 4QFY24 is estimated at 5.3%, 5.0%, 5.4%, 5.4% and 5.6% respectively. RBI expects inflation
to moderate in FY24 but may still remain well above the target of 4%.
Issued draft guidelines on levy of penal charges on loans
In order to improve transparency, reasonableness and consumer protection, the RBI has issued draft guidelines to the
regulated entities (banks) on levy of penal charges to obtain their comments. At present, the banks are required to have a
policy for levy of penal interest on advances, however, the banks follow divergent practices on levying of such charges and in
certain cases these charges are found to be excessive.
Expansion in the scope of TReDS
The RBI has expanded the scope of TReDS (Trade Receivables Discounting System) for MSMEs by providing insurance facility for
invoice financing, permitting all entities/institutions undertaking factoring business to participate as financiers in TReDS, and
permitting rediscounting of invoices (developing a secondary market in TReDS) which will improve the cash flows of MSMEs.

Outlook:-

• We believe RBI’s policy actions are broadly in line with the street expectations. The central bank has continued to maintain
its earlier stance of – “Withdrawal of accommodation while supporting growth”.
• Current Account Deficit (CAD) stood at 3.3% of GDP in 1HFY23 and is expected to moderate in 2HFY23, remaining well
within the parameters of viability. Forex reserves stands at $576.8 bn as of 27th January, which is equivalent to 9.4 months
of projected imports for FY23.
• Currency Outlook: The yield on the 10-year government securities (G-Sec) in India rose to 7.35% from 7.30%. INR slightly
improved towards 82.60 versus USD in the spot market. RBI said that the Rupee has remained one of the least volatile
currencies among its Asian peers in 2022 and continues to be so this year also. Similarly, the depreciation and the volatility
of the Indian rupee during the current phase of multiple shocks is far lower than during the global financial crisis and the
taper tantrum. INR is likely to retest the 81.00 level as the RBI may take some conventional measures to keep the currency
more stable. Going ahead, expected forex inflows on scheduled redemption of LTRO & TLTRO in Feb-April 2023 will add
surplus liquidity into the system. Meanwhile, prices will take cues from cooling US bond yields, subdued DXY on Fed
members comments, and FII movement in the local equities.
• Going forward, RBI’s future policy will duly consider new data releases and the evolving outlook of the economy as well as
the effect of the past actions. RBI is committed to bring inflation within its tolerance band and at the same time is focused
on propelling economic growth. The next meeting of the MPC is scheduled during April 3-6, 2023.
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Name Qualification Designation

Sudeep Shah MMS-Finance DVP- Technical & Derivative Research
Sunny Agrawal B.E, MBA (Finance) DVP - Fundamental Research
Rajesh Gupta PGDBM (Finance), MA (Bus. Eco) AVP - Fundamental Research
Monica Chauhan C.A. Research Analyst - Equity Fundamentals
Gautam Updhyaya MBA (Finance) Research Analyst - Equity Derivatives
Pratik Patni BSc. Biotech Research Analyst - Equity Derivatives
Netra Deshpande MMS (Finance) Sr. Research Analyst - Currency
Bhavin Parikh MBA (Finance) Research Analyst - Mutual Funds
Vinayak Gangule BE (IT) Research Analyst - Equity Technicals
Amit Chawda Bcom Research Analyst - Equity Technicals
Kalpesh Mangade B.Com MIS Analyst - Retail Research

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