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RBI's decision to keep policy rates unchanged is well thought-out: BS Jury

The economic growth is gaining momentum on the back of a revival in investment activity

Business Standard 

Reserve Bank of India

Rajnish Kumar, Chairman, State Bank of India

The RBI’s decision to keep the policy rates unchanged is well thought-out and on expected lines. However, more significant than this decision was the downward revision in projections and simultaneous upward revision in the growth numbers.

Rajnish Kumar

Rajnish Kumar

The economic growth is gaining momentum on the back of a revival in investment activity. Inflationary pressures, though tilted on the upside, are manageable. Even as the threat of a full scale trade war looms, global growth is getting broad-based, which will complement the domestic conditions. Development measures like minimum level of ‘loan component’ in working capital finance will foster credit discipline. The broadening of the IRS (interest rate swap) market will enable more market participants. The central bank’s steps on digital currency and ring-fencing of regulated entities from virtual currency are well advised. Overall, the financial markets have given a thumbs-up to the policy announcements and the bond markets will rejoice in anticipation of better days.

Rashesh Shah, President, FICCI

Rashesh Shah, President, FICCI

Rashesh Shah

The Committee has reiterated our view on improvement in the growth scenario. On both and growth, there are encouraging indications for the economy, with prospects of easing and recovery in growth. The bond yields will also come down. The policy’s growth outlook showing several factors expected to accelerate the pace of economic activity in 2018-19 is on the lines projected by FICCI’s surveys. While signs of an economic recovery are visible in the last few months, there is certainly a need to accelerate the growth levers to ensure a turnaround in manufacturing, and maximising the investment potential. With global demand improving, exports and investments are expected to pick up, and this is why the GDP growth is now projected to move up from 6.6 per cent in 2017-18 to 7.4 per cent in 2018-19. The must find space to cut rates in the coming quarters and continue with the necessary measures to encourage risk-taking and release animal spirits to boost investments and accelerate GDP growth.

Rajeev Talwar, CEO, DLF

Rajeev Talwar, CEO, DLF

Rajeev Talwar

The RBI, as expected, kept the unchanged at 6 per cent. The good news is it believes the economy has truly moved into the fast lane, with the GDP growth set to accelerate to 7.4 per cent in 2018-19. There are clear signs of revival, both in consumption spending and investment. Commercial vehicle sales are also growing at a fast pace, indicating that goods are moving at a faster pace from places of production to consumption markets. The growth in domestic air passenger traffic, too, indicates greater disposable income. Bank credit to residential housing is on the rise, which is another sign of growing confidence in the economy. Large amounts of funds raised through primary capital markets indicate companies are investing and adding capacities to meet rising demand. It is heartening to note that the is going to examine the option of digital currencies. We hope the considers a rate cut in the next policy meeting, which will spur housing demand.

Zarin Daruwala, CEO, India, Standard Chartered Bank

Zarin Daruwala, CEO, India, Standard Chartered Bank

Zarin Daruwala

The Reserve delivered a balanced, pro-growth policy that acknowledged a strengthening economy and a softer-than-expected inflation. While the status quo on policy rates and the neutral policy stance were along expected lines, the lower inflation forecast and reiteration of strong economic growth (7.2 per cent gross value added), should boost market sentiment. The Committee’s statement also balances its near-term dovish inflation view with upside risks to inflation on account of rising prices, widening fiscal and current account deficits, possibility of a weak monsoon, and the impact of HRA (housing rent allowance). The recent market-positive announcements around a moderate government borrowing programme for the current fiscal year, permitting to spread out their bond losses over four quarters and relaxing provisioning requirements for banks, should help ease and support growth.

Keki Mistry, Vice-Chairman & CEO, HDFC Ltd

Keki Mistry

Keki Mistry

The decision to keep the unchanged was a pragmatic move by the Committee (MPC). There were a number of factors that the had to consider before arriving at this decision. The CPI inflation moderated to 4.4 per cent in February, and the Reserve expects inflation to be lower than projected earlier. However, upside risks remain. Climbing oil prices, potential impact of minimum support prices, HRA (housing rent allowance), 7th Pay Commission, and a gradual increase in the US Fed rates (which may weaken the rupee and raise cost of imports) will increase inflationary pressures. A potential trade war is threatening to bring in more volatility to global markets. Further, the will wait on how the monsoon will play out. While the policy statement has maintained its neutral stance, I do see that it expects the economic activity in India to gather pace in the current financial year. Growing demand is a strong indicator with growth in air passenger traffic, automobile sector and capital goods production, and continuing pick-up in housing loans.

First Published: Fri, April 06 2018. 02:32 IST