The change in stance is being seen as a step towards the beginning of a rate cycle in December. Shares of NBFCs led the gains as at the outset of a rate cut cycle NBFCs benefit more than banks.
Shriram Finance was the top gainer in Nifty and was up over 4%. Other NBFCs Cholamandalam Investment and Bajaj Finance were up around 3% each. Nifty Bank was also up around 1%, with Axis Bank, SBI, PNB, and ICICI Bank leading the gains with an upside of 2-3% each.
Other rate-sensitives like auto and real estate stocks also rallied up to 6% post the announcement.
“This change in RBI’s stance opens the door for possible interest rate cut in December or February, assuming no inflationary shocks from exogenous factors like Oil. Despite no significant shifts in growth or inflation forecasts, the policy is rightly being aligned with global central banks, rather than focusing solely on food inflation,” said Amar Ambani of YES Securities.
However, he said any cuts over the next year are expected to be modest at around 50 basis points, as the RBI has informally indicated a preferred real interest rate range of 1.5-1.9%.At the end of a 3-day meeting of the monetary policy committee (MPC), RBI Governor Shaktikanta Das maintained the repo rate at 6.50% for the 10th consecutive time but changed the stance.In his policy speech, Das warned that some NBFCs are pursuing growth without risk management but noted that the overall NBFC sector remains healthy.
On inflation, Das noted that a recent increase in food and metal prices, if sustained, could contribute to the upward risks of Consumer Price Index (CPI) inflation. The CPI inflation is projected at 4.1% in Q2 and seen rising to 4.8% in Q3. RBI has projected India’s GDP for FY25 at 7.2%.
“While there were hopes for a rate cut in line with the U.S. Fed, the RBI has taken a prudent approach by focusing on key indicators like domestic inflation and financial stability, particularly in light of the declining individual savings as a percentage of GDP, which poses a financial stability risk,” said Suresh Darak, Founder of Bondbazaar.
He said MPC’s decision to hold rates steady could be driven by the fact that geopolitical tensions are posing an upward risk to crude oil prices.
“Over the last couple of weeks, the 10-year benchmark G-sec yields have risen by around 10 basis points due to these factors. However, if these global challenges prove temporary, we might see a rate cut in the next policy cycle,” Darak said.
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