Experts react to RBI’s August policy announcement: A cautious ’wait & watch’ approach

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) announced on Thursday, August 8, that it would keep the policy rates unchanged, maintaining the benchmark repo rate at 6.5 percent for the ninth consecutive meeting. The MPC also retained its policy stance of ‘withdrawal of accommodation,’ highlighting robust economic growth and easing inflation.

The decision to keep the policy repo rate unchanged was made by a 4:2 majority, leaving the standing deposit facility (SDF) rate at 6.25 percent and both the marginal standing facility (MSF) rate and the bank rate at 6.75 percent.

The RBI maintained its real GDP growth forecast for FY25 at 7.2 percent, with a slight adjustment for Q1 to 7.1 percent from the previous 7.3 percent projection. The central bank left its GDP growth forecasts unchanged for Q2 at 7.2 percent, Q3 at 7.3 percent, and Q4 at 7.2 percent. The GDP growth forecast for Q1FY26 remains at 7.2 percent.pran

Additionally, the MPC upheld its CPI (Consumer Price Index)-based inflation projection for FY25 at 4.5 percent, with some revisions across quarters. The Q2 FY25 forecast increased to 4.4 percent from 3.8 percent, the Q3 forecast rose to 4.7 percent from 4.6 percent, and the Q4 forecast decreased to 4.3 percent from 4.5 percent. The forecast for Q1FY26 is set at 4.4 percent.

"Headline inflation is moderating, but the pace is uneven and slow," remarked RBI Governor Shaktikanta Das.

Here’s what experts have to say about the decision and its implications for the economy and financial markets:

Umeshkumar Mehta, CIO, SAMCO Mutual Fund

RBI MPC is in wait and watch mode and has kept the interest rates unchanged, waiting for clues from the largest Central Bank of the world, US Federal Reserve, before acting. Though India’s position today is far more resilient on the economic front which could have allowed a slight rate reduction to test the water on inflation and exchange rates, but RBI has taken a safer bet and decided to wait for rate reduction by the third or the fourth quarter of this year. Stock markets will continue to consolidate in the mean while.

VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

The status quo in policy rates and stance were on expected lines. The Governor emphasised the need for vigilance on the inflation front saying 'price stability is necessary for sustained growth'. There is nothing in the policy that will influence the market much. The market will be focused on the US jobs data today and the market’s response to it and the recession fears in the US.

Madhavi Arora, Lead Economist, Emkay Global Financial Services

The fluidity of global Goldilocks narratives, financial markets turmoil and policy repricing’s found little space in the Governor's speech, thanks to recent easing volatility in the financial markets. However, noisy food inflation back home, and a still-elusive 4% inflation target formed the base for the RBI decision making. Understandably, persistent food inflation (with sporadic volatility in vegetables and continued supply tightness in pulses), averaging at 8% in the past 12 months, has prevented durable disinflation.

While the MPC has been wary of spill over risks, we do not see core inflation moving above 4% till end-CY24 and averaging at sub-3.75% in FY25. We maintain that growth is sub-par in India and do not subscribe to the RBI’s estimate of FY25 growth at 7.2% (Emkay: 6.5%). Weaker demand dynamics will keep pressuring core inflation. Besides, lower input prices ahead may help ease some pressure on output prices as well.

But the RBI is likely to continue to stress being 'actively disinflationary', and be on wait-and-watch mode for assessing multiple macro forces - unless, of course, global winds force them to move focus to financial stability over the 4% inflation mandate.

Atul Parakh, CEO - Bigul

The Reserve Bank of India maintained its policy repo rate at 6.50%, focusing on controlling inflation, which rose to 5.1% in June. This decision aligns with economists' expectations and reflects the central bank's cautious approach. Despite solid economic growth, the RBI remains committed to its inflation target of 4% with a tolerance level of 2% above and below that level. The bank's stance suggests a continued focus on price stability over immediate rate cuts, given the recent history of rate hikes and the current economic climate.

Technical View

Santosh Meena, Head of Research, Swastika Investmart

The recent RBI policy announcement was largely uneventful, with the central bank keeping policy rates unchanged and continuing the withdrawal of accommodation as expected. The focus remains on tackling inflation, with no concerns about growth, and there are no indications of rate cuts in the near term. Consequently, the market will now turn its attention back to global cues.

Although there are signs of a temporary bottom in the global market, Nifty, and Bank Nifty, there is still a risk of fresh selling pressure at higher levels. Technically, Nifty is forming a bottom around the 50-DMA of 24,000, with important hurdles at 24,350, 24,525, and 24,700. Meanwhile, Bank Nifty is trying to establish a base around the 100-DMA of 5,000, with the key resistance area lying between 51,000 and 51,500.

The RBI’s decision to keep interest rates unchanged reflects a cautious approach amid global economic uncertainties and domestic inflationary pressures. While experts agree that the policy was largely anticipated, they emphasize the importance of maintaining vigilance on inflation while monitoring global economic developments. The focus on price stability over immediate rate cuts suggests a prudent strategy in navigating the current economic climate, with the possibility of future rate adjustments depending on evolving conditions. As the markets adjust to this policy stance, attention will remain on global cues and domestic inflation trends.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.