Views on RBI Monetary Policy - June 2022

Mr. George Alexander Muthoot, MD, Muthoot Finance

"In the light of the uncertainty of persisting geopolitical tensions, concerns over rising global inflation and escalation in global crude oil prices and other commodities, we had expected the RBI to hike interest rates in consonance with the recent off-cycle policy meeting. The RBI has further hiked the repo rate by 50bps to 4.9% and will be focused on 'withdrawal of accommodation' to ensure inflation remains within target going forward while supporting growth. RBI further retained its FY23 GDP forecast at 7.2% on the back of recovery in urban demand and improving rural demand conditions along with expectations of normal monsoon. The push from the government on capex and increase in capacity utilization is likely to bolster well domestic economic activity. The RBI has also reiterated that they will ensure adequate liquidity in the banking system for productive purposes of the economy. We are optimistic that with pick up in both urban and rural demand, there will be a pick-up in demand for gold loans in the industry in the upcoming quarters."

Mr. Umesh Revankar, Vice Chairman & MD, Shriram Transport Finance

"The RBI, largely on expected lines, hiked the repo rate by 50 bps with the MPC focussing on 'withdrawal of accommodation' to ensure inflation remains around the medium-term inflation target, while supporting growth. As the inflationary expectations have been rising, the RBI hiked the FY23 inflation forecast to 6.7%, but retained the FY23 GDP forecast at 7.2%.

The rise in inflation is largely attributable to global crude oil prices and the geo-political environment. The RBI has been taking measures to tame excess system liquidity while the Government is managing inflation by reducing tax on petroleum products and restricting exports of essential commodities. We believe the regulator may not hikes rates very aggressively hereon, and will continue to monitor the evolving growth-inflation dynamics. While surplus system liquidity has come down, the RBI has said they will ensure adequate system liquidity for productive purposes. As a result, we do expect borrowing cost to go up gradually. It was heartening to see that RBI expects a pick-up in investment activity and an improvement in both urban and rural demand conditions. There continue to be some challenges, but we do expect to see a pick-up in new vehicle sales as investment activity and government capex spend in the economy while used vehicle demand continue to be robust."

Source : Equity Bulls

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RBIMonetaryPolicy June2022 MuthootFinance STFC