RBI has done the right thing: C Rangarajan

In a move to curb inflation, RBI has increased repo and reverse repo rates by 50 basis points each. The rise in policy rates was expected by the market and the industry. Here is how some key personalities reacted to the credit policy:

Former RBI governor C Rangarajan

“Strong action called for and RBI has responded in the right way. Slight impact on growth.”

Robert Prior-Wandesforde, Head of India & South East Asia Economics, Credit Suisse

“FIIs could get cautious about India as they would assess if India is a strong 8.5% growth market anymore.”

Hemant Mishr, Head Global Markets South Asia, Standard Chartered Bank

Hawkish policy in terms of action and stance. It says inflation may not be down soon

Shailendra Bhandari, MD & CEO, ING Vysya Bank

Savings account increase will compress bank profit margins. Not looking at an increase in deposit rates immediately. Lending rates may go up.

Rajiv Kumar, Director General, FICCI

Rate hike will lead to souring of the business sentiment. Even a 7.6% growth rate looks like a fairytale

Sonal Varma, India Economist, Nomura Financial Advisory & Securities (India) Private Limited

RBI is saying that growth takes a back seat. The consumption demand may also start tapering off.

Goldman Sachs in a report

Goldman Sachs believes that the impact of the savings rate hike on the bank margins could be negative unless (1) banks pass on the higher cost of borrowers, (2) they charge higher fees for transactions, (3) require higher account balances, remove other free services that come along with such deposits. The broking firm believes it will be a combination of all, but banks may still see a net impact on margins and profit in the short to long term until rates stabilize.

The banks would need to hike their prime lending rate (PLR) and base rates by 50 basis points in order to maintain margins.