RBI may begin easing cycle with CRR cut in Jan: experts

Open market operations may be the preferred route to provide the necessary liquidity, they say

The Reserve Bank of India (RBI) left policy interest rates unchanged as expected on Tuesday, ignoring the growing clamour from business and politicians to lower them, and reiterated its October guidance of further policy easing in the March quarter as it shifts its focus towards boosting growth.

Here is what the experts have to say:

Leif Eskesen, HSBC, Singapore

"The Reserve Bank of India did not see a need to cut the cash reserve ratio at this point, which is a little bit of a surprise. But otherwise their action is in line with expectations.

"They have re-emphasized their earlier guidance of possible easing in the last quarter of the fiscal year. I think there is still limited room to cut rates. Structural reforms and a revival of investment in infrastructure would be needed to revive growth."

Shubhada Rao, Yes Bank, Mumbai

"While we definitely expected liquidity injection through more calibrated moves based on government spending, open market operations would still be the preferred route. So basically we are anticipating a rate cut in January by 25 basis points and in March by 25 bps and going into the next fiscal year, we are expecting 50-75 bps additional rate cuts.

"If the government keeps a very tight lid on spending in the rest of the fiscal year, we could see a CRR move, but given the sticky nature of government expenditure, it would still be the OMO (open market operation) route for liquidity injection."

Radhika Rao, Forecast Pte, Singapore

"Last week's sub-consensus November WPI had fanned speculation in some quarters that the RBI might lower the key rate today, though we reckon that a cut at this stage would have been premature given the scope for these prints to be revised higher in coming months.

"That said signs in softening RBI guidance is apparent as focus has shifted to growth and odds for a rate cut in Jan-March quarter is likely to gather considerable momentum here on. Barring a sharp acceleration in December WPI, we look for a 50 basis points reduction in Q1 2013, possibly front-loaded in the January meeting."

Sujan Hajra, Anand Rathi Securities, Mumbai

"The policy is benign. I think the RBI will begin the easing cycle with a CRR cut in the January policy. The first rate cut will come in February-March and I expect cumulative 75 basis points of repo cuts by June."

Abheek Barua, HDFC Bank, New Delhi

"I had expected a CRR cut but there was no compelling reason to do so. Whatever the RBI spelt out in October seems to have got support from the inflation trajectory. Net of the base effect, we see the current trend continuing and a case for rate cut strengthening, which they could do in January.

"There is still some uncertainty on government's borrowing, and they could borrow additionally in the last quarter, which could create a situation of tight liquidity and RBI could save for a CRR cut until then.

"I think today's move reinforces the expectation of more open market operations, which is a bond positive."