Expert Views: RBI expectedly keeps policy rate unchanged

The central bank kept the repo rate unchanged at 6.50% at his final policy

RBI Governor Raghuram Rajan, who bows down next month, kept the repo rate unchanged at 6.50% at his final policy review on Tuesday after inflation hit a nearly two-year high.

Commentary

Vijay Sharma, senior executive vice-president, PNB Gilts Ltd, New Delhi

"The policy is pretty bond positive and guidance on liquidity and announcement of OMO simultaneously is a quick and clear message. Bond yields should stay lower on this guidance and action. We see the 10-year benchmark yield going towards 7% by month-end after a brief pause at 7.09-7.10%."

Dhiraj Sachdev, fund manager, HSBC Assest Management, Mumbai

"Policy was largely in line with our expectations. RBI noted that in the recent past, inflation had inched up which is expected to reverse with the advent of a good monsoon."

"We expect a cut of 25 basis points by year end. Liquidity diffusion is getting easy and comfortable now and that's what RBI had intended to do because earlier the banks were not transmitting rates. We believe comfortable liquidity, which the RBI had advocated will ensure transmission to gradually happen going forward. Therefore, a rate cut in the fourth-quarter of the calendar year looks plausible as favourable monsoon and easy liquidity should incline RBI to cut rates."

Madhavi Arora, economist, Kotak Mahindra Bank, Mumbai

"The key takeaway was the liquidity provision. I think the major policy factor going ahead is going to be how RBI really manages the liquidity paradigm in the September to December period, which not only would see higher currency in circulation but also tighter government spending and FCNR deposit outflow related mismatches."

Marie Diron, senior vice-president, Sovereign Risk Group, Moody's Investors Service, Singapore

"In the next few months, we expect continuity in the RBI's policymaking. In particular, the government's notification of the inflation target at 4% +/-2% through to 2021 denotes ongoing commitment to keeping inflation at moderate levels. Meanwhile, the formation of a monetary policy committee is in line with common practice in many central banks around the world. We do not expect the RBI's shift to such a structure to have any significant implications for the conduct of monetary policy."

Sanjeev Bhasin, executive vice-president - Markets, India Infoline, Gurgaon

"Policy was inline with our expectations. It was Rajan's last policy and we weren't expecting anything dramatic given what the target for inflation and growth is."

"We expect the new governor now to definitely cut rates in the next policy by around 25 basis points because I expect second-half should play out on account of moderating inflation post good monsoon and to instigate more consumption and good credit growth, you could have RBI cutting at least once before the year end."

Saugata Bhattacharya, economist, Axis Bank, Mumbai

"Policy seems to be completely on expected lines, emphasizing on liquidity conditions. Room for rate cuts on future would depend on how inflation fares. Given better monsoon so far, it would provide room to cut rates in coming months."

Radhika Rao, economist, DBS Group, Singapore

"Besides an unchanged stance, the policy commentary is moderately cautious with upside risks seen to March 17 CPI targets. Food prices are expected to soften but prints might prove sticky just as demand dynamics come into play with pay commission hikes and higher rural demand."

"Liquidity stance will be the focus area until the room to ease rates re-emerges, which we reckon is 4Q. In the run up to the October review, the choice of the new Governor and policy committee members will be under watch."