RBI Holds Repo Rate at 5.5 Percent, Cites Global Uncertainty and Domestic Growth Tailwinds

Mr. V P Nandakumar, MD & CEO Manappuram Finance Ltd.

“RBI MPC’s decision to keep repo rate unchanged at 5.5% stems from the fact that the central bank wants to watch out how the current situation unfolds in the coming months as there are several external headwinds to the domestic growth. RBI observes that the trade restrictions will hit external demand, geopolitical conflicts continue to escalate, and volatility in the global financial markets may continue. However, a major tailwind is the recent GST rate rationalization, which is expected to boost domestic GDP growth substantially. CPI inflation is benign and projected to be within the central bank’s tolerance limit, forex reserves are in a comfortable position, and the growth projections are intact. Thus, RBI has moved towards further internationalization of the rupee and several measures to strengthen the financial condition of banks and regulated entities, and ease of doing business. The transmission of earlier rate cuts is progressing well and the credit growth in the economy is healthy. So, RBI is waiting to see the real impacts of global trade tensions and estimated consumption boom post GST rate rationalization.

Another notable measure is easing of bank funding to capital market operations like enhancing the limit of lending against shares. For individuals and institutions, the move is beneficial. NBFC funding to operational infrastructure projects is also relaxed, which will eventually strengthen the financial position of non-bank lenders. Despite a weakening rupee, efforts to internationlise rupee and promote NRI investments in India worth special mention.”