MID-TERM MONETARY POLICY 2008-09: BS Jury
O P Bhatt, Chairman, State Bank of India
The recent 100-basis-points cut in the repo rate and the 250-bps cut in CRR are clear signals from RBI for a low interest rate regime. Today’s world of integrated financial markets calls for nothing short of co-ordinated response by regulators and governments globally. Thus, the proposals are welcome steps.
In today’s widely wired world, India cannot remain immune to the widespread weakening in global growth. Thus, the economy is showing signs of slowing, particularly industry.
Inflation remains high but has been declining in recent weeks, and with lower fuel and commodity prices and slowing global demand we expect inflation to moderate, but not immediately. So far export growth has remained resilient, but imports will continue to outpace exports and along with the softer external demand, we can see a further widening of the trade deficit.
Against this backdrop, the central bank has revised its GDP projection for FY09 to 7.7-8 per cent from 8 per cent, while maintaining the end-March 09 inflation target at 7 per cent.
Chanda Kochhar, Joint MD & CFO, ICICI Bank
The credit policy presents a comprehensive analysis of developments in both the global and domestic markets and underscores the strong fundamentals of India’s economic development.
While growth projections for our economy have been revised from 8.0 per cent to the range of 7.5-8.0 per cent, we still remain one of the fastest growing economies in the world.
The mid-term review comes at a time of increased uncertainty in global markets. The domestic impact of these conditions has been visible in the liquidity situation in India and RBI has been addressing the domestic liquidity requirements. This month, RBI has affected a 250 basis points (bps) cut in the cash reserve ration and 100 bps cut in the repo rate.
Such measures have addressed the immediate liquidity shortages in the system and also indicate the central bank’s policy of active management of financial market developments.
However, the impact of these measures remains to be seen given the continued risk aversion in global markets.
Meera Sanyal, Country Executive India, Royal Bank of Scotland
The Reserve Bank of India has treated the monetary Policy announcement event as an opportunity to present a review of the economy and markets in the backdrop of the global financial crisis.
After having moved swiftly over the last fortnight to ease the monetary levers, maintaining status quo on rates for the time being is a pragmatic move.
This signals that the central bank will take appropriate action as and when the need arises, given the volatile and dynamic nature of the developments in the global financial markets, rather than wait for predefined dates to announce changes.
We expect that the central bank will continue to pro-actively calibrate its policy tools to tackle intensifying pressures on the rupee and rising downside risks to growth.
The central bank is likely to maintain easy liquidity conditions to ensure adequate supply of bank credit and financial stability in the face of continuing capital outflows.
S Mahalingam, CFO and ED, TCS
The primary concern seems to have been managing a slipping growth rate, double-digit inflation, and financial stability. For the Indian IT sector, which is facing headwinds in the form of uncertainties in the global financial market, its larger operational concern in the recent past was the volatile rupee.
There have been changes in ECB norms only a few days ago to shore up dollar supply. We look at RBI's action as its intervention when there are substantial dollar outflows from the market, leading the rupee to weaken.
While a weak rupee is good news for our sector in a narrow sense, it cannot be good for the economy when it happens so sharply.
For some more time, remittance and FDI would drive dollar supply till financial markets stabilise and FII investments turn positive.
The cut in the targeted GDP growth rate to 7.5- 8.0 per cent from 8.0-8.5 per cent is a reflection of the global economic turmoil. Cooling commodity prices is the chief reason why RBI is confident of bringing down inflation to 7 per cent by March.
Pawan Kant Munjal, MD & CEO, Hero Honda Motors
The decision by RBI to keep CRR rates unchanged was not entirely unexpected, especially since CRR and repo have already been cut. However, the central bank could have slashed the statutory liquidity ratio (SLR), thereby enabling banks to have more funds to lend.
Banks continue to be hesitant to lend because of high risk aversion. What is a little worrying is that by keeping rates unchanged, banks may also be encouraged to take up a wait-and-watch policy.
The decision on easing the external commercial borrowing (ECB) policy will only have a limited impact for two reasons: First, the global liquidity position is tight, so international banks won’t be in a position to lend easily and second, the ECB window can be used effectively only by large companies with effective hedging capabilities.
As for the two-wheeler industry, consumer finance is a cause of concern. If the current high rates for consumer finance loans continue (currently in the effective range of 24-26 per cent) we could see demand tapering off once again.
Pradeep Jain, Chairman, Parsvnath Developers
In the wake of the global financial crisis, Indian banks have started adopting a conservative approach in lending to productive sectors. RBI has intervened and reduced CRR to 6.5 per cent to infuse Rs 1 lakh crore to give relief to the cash-strapped market.
For the first time since 2004, it has also decided to reduce the repo rate by 100 basis points to 8 per cent. As a result, it is expected that banks, which were earlier jittery about lending, will now be comfortable to borrow from RBI, thereby reinforcing their confidence in lending.
However, this is still not sufficient to provide assistance to the productive sectors and the industry is expecting some support from RBI through a further relaxation in the repo rate by another 100-200 bps and a further cut in CRR.
But the credit policy did not bring any relief and this has shaken the confidence of investors to such an extent that the Sensex traded at its lowest since 2006.
In order to keep the economy afloat in turbulent times, RBI should infuse additional liquidity.