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The Reserve Bank of India (RBI) kept the repo and reverse repo rates unchanged as it cut the statutory liquidity ratio (SLR) by 50 basis points (bps) while reviewing the Monetary Policy today.
“Given that there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, it is appropriate for the Reserve Bank to await them and maintain the current interest rate stance,” Raghuram Rajan, governor, RBI said in a statement.
Here is a quick compilation of how the experts interpret the development:
Sonal Varma, economist, Nomura
We expect the RBI to deliver one more 25bp rate cut at the April policy and then leave the repo rate unchanged at 7.50% thereafter because 1) we do not expect further sustained disinflation; and 2) we expect real GDP growth to pick up gradually, which should result in a gradual narrowing of the output gap
Pranjul Bhandari, chief India economist, HSBC
Market expectations of 125-150bps in rate cuts are overdone in our view. We believe the space to cut more than 75bps this year is constrained by the RBI's intention to reduce inflation further to 4% +/-2%, during a period, where we think economic growth will be ticking up, putting pressure on core inflation. Another factor to note is that the new CPI series assigns a higher weight to core inflation (47.3% vs. 42.9% in the current series), which the RBI will have to be mindful of
Rahul Goswami, CIO - Fixed Income, ICICI Prudential AMC
We believe there is potential for interest rates to trend further downwards by 50 bps, over the next three months. For debt mutual fund investors, we continue to recommend medium and high duration funds to our investors, with medium-term funds expected to offer a better risk-reward opportunity
Sujan Hajra, chief economist, Anand Rathi Financial Services
The measures announced are positive for private sector banks because these banks can now switch incremental deposits to credit rather than SLR investment and the former has better blended yield over the latter. Moreover, change in asset classification norms for restructured assets where management of the company for which asset getting restructured is under change, is likely to reduce provisioning requirement. This would help both the private and public sector banks. These suggest that the RBI probably finds rupee to be overvalued. A weaker rupee should help sectors with large forex revenue like IT and pharma
Rajiv Shastri, MD & CEO, Peerless Fund Management
Its a pragmatic policy that keeps the focus firmly on inflation expectations. In addition, cognizance has also been taken of the emerging external challenges, primarily short term debt flows, which have the potential of influencing either external competitiveness or domestic liquidity and rate
Deutsche Bank
Clearly with the budget coming in a few weeks from now, the next rate cut now seems likely to be off-cycle, perhaps in the first week of March. Looking ahead, we think that given global developments, inflation pressure will remain muted for the course of this year
Bekxy Kuriakose, head – Fixed Income, Principal Mutual Fund
As expected RBI kept key rates unchanged, however they cut SLR by 50 bps. The policy stance seems consistent with earlier statements in terms of moving gradually and watching out for further data on inflation and fiscal policy. Overall we are still in a rate easing cycle and we continue to expect further easing in repo/reverse repo by 25-50 bps in next six months
Dinesh Thakkar, CMD, Angel Broking
In my view, the ongoing fall in inflation is structural and sustainable and if the government also delivers on fiscal consolidation as expected, there is likely to be further easing by RBI post the budget. Going forward with benign inflation, I expect reduction in interest rate by around 75bps over the next few quarters
Kunal Shah, Fund Manager - Debt, Kotak Mahindra Old Mutual Life Insurance
Once again onus is now on Government to deliver on fiscal and supply side measures to deserve lower cost of capital. Bond yields should stabilize in narrow range after sharp drop. Inflation prints, global commodity prices and fiscal deficit prints should provide more cues in near future
Arundhati Bhattacharya, chairman, SBI
RBI policy was in line with market expectations of a status-quo. The SLR cut is expected to provide growth supportive liquidity of about Rs. 45,000 crore. With inflationary expectations at a 21 quarter low and coupled with a benign global environment, we are in the early phases of a prolonged rate easing cycle.
Nirakar Pradhan, CIO, Future Generali India Life Insurance
If inflation trajectory remains benign and the Government sticks to its fiscal deficit targets, there is a strong chance of further rate cuts by RBI. With positive domestic macroeconomic developments and RBI’s stance clearly turning towards easing of liquidity and policy rates, both equity and debt markets are likely to benefit in the year ahead
Rana Kapoor, MD & CEO, YES Bank and President, Assocham
Regulatory measures allowing flexibility in extension of DCCO of projects where a change of ownership takes place and the extension of the dispensation to NPAs with respect to reversing the excess provision on sale of NPAs to securitization/reconstruction companies, should help to expedite implementation of delayed projects and help banks recover appropriate value from their NPAs respectively
Mihir Vora, Director & CIO, Max Life Insurance
The key factors that seem to be dwelling in the mind of the policy-makers are 1) inflation and inflation expectations 2) quality of fiscal deficit improvement and 3) the hot-money flows to markets like India in a loose global monetary environment especially in Europe and Japan. We continue to be bullish on Indian Government and Corporate bonds and continue to expect a further 75 basis points rate cut during financial year ending March 2016
Shashwat Sharma, Partner- Financial Services, KPMG in India
We appreciate RBI’s watchful approach on awaiting for structural changes by the Government in the domestic economy before announcing further interest rate cuts. The SLR reduction should hopefully propel more growth in the economy
