The Reserve Bank of India (RBI) left interest rates unchanged for the second time since June, in line with expectations, while cutting its growth forecast and lifting its inflation outlook as economic conditions deteriorate.
The RBI kept its policy repo rate at 8 percent and left the cash reserve ratio for banks at 4.75 percent. CRR is the share of deposits banks must keep with the RBI.
Here is what experts have to say about RBI’s hawkish policy
Dinesh Thakkar (CMD- Angel Broking) said:
“The RBI’s stance is clearly focused on inflation control. Acknowledging the weak environment, the RBI reduced its GDP growth estimates to 6.5% and increased inflation estimates to 7% for FY13. This suggests low possibility of rate cuts in the near future. But the RBI statement does not come as a surprise to markets, as markets were widely expecting no rate cuts. The markets are already factoring in the current relatively modest economic outlook. The RBI has taken the right steps in my view. At this point, with the risk of food inflation looming on the one hand and fiscal deficit on the other, the RBI needs to anchor inflationary expectations by keeping rates unchanged.”
SURESH KUMAR RAMANATHAN, HEAD OF REGIONAL RATES AND FX STRATEGY, CIMB, KUALA LUMPUR
“An overall hawkish stance with the bare minimum being done by RBI, particularly the SLR cut by 100 bps. The communiqué is targeting inflation and its appropriate they did not cut the policy rates. GDP growth reduced is in line with our expectations that India’s macroeconomic dynamics — trend growth and C/A balance is deep in negative macroeconomic dynamics.
“We see further rate cuts will be measured and with inflationary pressures intact, calling for further rate cuts will remain a gamble. Any form of easing should be seen from the angle of currency softness, that will help reduce the current negative macro dynamics that India is facing.”
SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI
“Today’s action was no more a surprise for the market. A non-event reflects the central bank’s prudent effort in controlling the inflationary expectation and leaves the growth onus in the government’s hand. Further cutting down the SLR would have little impact on the overall systemic liquidity and would negatively weigh on the government securities market in the near term.
“The path of monetary easing would henceforth be guided by the pace of fiscal reforms with near-term focus on expenditure restructuring. A delayed response from the government’s end might handicap the quantum of rate cut in the forthcoming policy meet.”
ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI
“The Reserve Bank of India struck a hawkish stance in its monetary policy statement. Once again, containing inflation and inflationary expectations have been highlighted as the priority.
“On economic growth, though the moderation has been noted, the RBI sees limited role of rate cuts in stimulating growth. Overall it affirms our view that any rate cut from the RBI is unlikely in rest of 2012.”