Markets divided on RBI policy decision: RBS Survey

Half the respondents see no change in announcement other half sees a cut of 25-50bps in CRR and 25bps in policy rates

Markets are clearly divided on the expectations from the second quarter monetary policy review to be announced by the Reserve Bank of India (RBI) on Tuesday, a client survey conducted by the Royal Bank of Scotland (RBS) showed.

Half of the respondents expect no change in the cash reserve ratio while the other half is looking at a reduction of 25-50bps. In terms of policy rate, 53 per cent of respondents expect no change while the rest largely expect a 25bps cut.

However, over a longer term, markets are preparing for lower interest rates. "The market is leaning more towards a 50bps cut, in the repo and reverse repo rates, than a 25bps cut as well," said RBS on policy expectations by March 2013.

By June 2013, a little more than 60 per cent of the respondents expect reduction in cash reserve ratio by 25bps or more. Around 70 per cent of the market expects a 50bps rate cut in repo and reserve repo.

The survey covered over 120 local market participants including corporate clients, banks, insurance companies and mutual funds. More than half of the responses were from corporate clients and rest from financial institutions, said RBS.

Citing liquidity concerns, the central bank had reduced cash reserve ratio by 25bps to 4.5 per cent in the mid-quarter monetary policy held in September. However, the RBI has kept policy rates unchanged since April 2012 on account of stubborn inflation. The policy rate or the repo rate is at 8 per cent currently.