RBI Monetary Policy: Experts hail status quo on repo rate, continuance of neutral stance

The Reserve Bank of India kept its repo rate at 6.25 percent for a third consecutive policy meeting on Thursday as it continues to guard against any potential flare-up in inflation and an uncertain global economic environment.

All 60 economists polled by Reuters had predicted the RBI's six-member monetary policy committee (MPC) would keep the repo rate at the same level since October.

R. Sivakumar, Head-Fixed Income, Axis Mutual Fund: “RBI left rates unchanged as the markets had expected. As the RBI is on hold for the moment, we expect short term bonds to outperform long bonds. Short bonds are less sensitive to the policy outlook as well as to global risks."

Chakri Lokapriya, MD & CIO, TCG AMC: “Reverse Repo increased to 6 percent is incrementally positive for banks. Importantly, RBI has announced that banks can start to invest in REITs, which is a positive measure for both banks and real estate developers. For banks it offers an additional important asset class for investing and brings liquidity. For commercial real estate companies, it brings in liquidity, and frees up capital which lowers their cost of capital.”

D K Srivastava, Chief Policy Advisor, Ernst & Young: “This is along expected lines. Repo rate has not been changed because there is an upward risk to inflation that is being anticipated, while growth appears to be turning positive in RBI's view. They are basically focused in inflation. The main thing is that neutral stance is being maintained."

Tushar Arora, Senior Economist, HDFC Bank: “Adjustment of the LAF corridor should help arrest the decline in bond yields and excess liquidity problem to a certain degree. The absence of big bang liquidity measures means the RBI still wants to wait and gauge the extent of durable liquidity - that finally remains in the system. Going by the road map on liquidity management given by the RBI, I believe that more durable steps for liquidity management could be in the offing later on and may be before the next policy meeting."

Urjit Patel, Governor, RBI. Reuters

Urjit Patel, Governor, RBI. Reuters

Samrat Dasgupta, CEO, Esquire Capital Investment Advisors: "It is clear that we are at the end of the rate-cutting cycle. The RBI expects an increasing inflation trajectory and they seem to be adequately preparing for an improving capex cycle and well as liquidity lowering measures in the US."

Bekxy Kuriakose, Head - Fixed Income, Principal Mutual Fund: “RBI hiked reverse repo rate by 25 bps to 6 percent thereby reducing the corridor between repo and reverse repo to 25 bps from the existing 50 bps. The essential aim seems to be ensuring a sharper focus on the keeping overnight rates (especially the overnight call money rate) aligned to the repo rate. Point 16 in the RBI policy statement is significant: RBI seems to have moved to focus on General Government Fiscal deficit from only Central Govt deficit. Concerns on State government fiscal deficit is now becoming paramount especially in the wake of recent farm loan waivers. RBI’s worry on inflation remains especially on account of: monsoons, 7th CPC, GST, global reflation risks. On the market developmental measures, the decision to allow substitution of collateral by market participants in the term repos under the LAF is expected to give operational flexibility and enhance liquidity of collaterals. Overall the policy seems slightly negative for medium to long term gilt prices as the risk of OMO gilt sales by RBI remains to drain durable liquidity and with supply resuming as the new borrowing programme starts.”

Andrew Gracias, Head - Financial Markets, RBL Bank: "As expected by most market participants, RBI continues with its neutral stance on Monetary Policy. Though there is no change in key policy rates, the LAF corridor has been narrowed with hike in reverse Repo rate and MSF rate, to absorb current liquidity overhang in the market. While it might take next three or four quarters for the liquidity conditions to normalise, Central Bank’s commitment to deploy all tools as needed to address the situation will alley market concerns. The most significant part of the policy review was the move to allow banks to invest in real estate investment trusts (REITs), which will be a huge positive for the real estate sector."

Ranjeet Mudholkar, Vice Chairman and CEO, FPSB India: “The status quo of the repo rate has probably been maintained essentially on account of the upward risk to inflation being anticipated. Additionally, coupled with the RBI's announcement that the banks may invest in Real Estate Investment Trusts (REITs) is a positive measure for both banks and the real estate developers; As for the banks, it offers an additional important asset class for investment and brings liquidity, while it enhances liquidity for the real estate firms thus freeing up the capital and lowering the cost of capital.”

Adhil Shetty, CEO & Co-founder BankBazaar.com: "As expected, the RBI has deviated its liquidity management strategy from being accommodating to being neutral. Inflationary trends are gathering pace. Hence, to get a control over it and to squeeze excess liquidity out of the banking system, RBI has increases the reverse repo rate. Also, NPAs and bad loans are still a huge concern for both the regulatory bodies and financial Institutions. Along with it, some of the high impact impending events such as implementation of GST, seventh pay commission, monsoon, surge in commodity prices, rupee stability and excess liquidity, are making it very difficult to be certain about inflation and hence this breather is good for the industry. "

Avnish Jain, Head – Fixed Income, Canara Robeco: "As expected, the RBI kept key repo rate unchanged at 6.25 percent and policy stance 'neutral'. However, it narrowed the LAF corridor by 25 bps by increasing reverse repo to 6 percent and bringing down MSF and Bank rate to 6.50 percent. This was done to manage the overnight rate within a narrow corridor in light of extremely high liquidity. RBI indicated that it is committed to bring down liquidity to neutral and will use tools like MSS and OMO to manage liquidity. Going forward RBI expects inflation to be around 4.5 percent for first half on FY18 and 5 percent in second half with risks balanced on both sides. The future course of policy action RBI will depend on incoming macro-economic data and evolving global conditions and local conditions like oil prices, monsoons and impact of GST on inflation.”

Surendra Hiranandani, Chairman & MD, House of Hiranandani: "As widely expected, Reserve Bank of India today kept the repo rate unchanged at 6.25 percent for the third time in a row. One of the highlights of today's policy was the decision to allow banks to invest in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INVITs) within the 20 percent umbrella limit. It will allow banks to invest in an important asset class thereby providing much needed boost to this segment. Owing to better liquidity, the cost of capital for developers in the commercial segment will come down in the future. The decision to hike reverse repo rate by 25 bps to 6 percent will control the liquidity surplus in the system. The corridor between repo and reverse repo rate has been reduced to 25 bps indicating that the central bank wants to align market rate with the policy rate."

 

 

 


Published Date: Apr 06, 2017 04:33 pm | Updated Date: Apr 06, 2017 04:33 pm


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