RBI Policy: Experts see room for rate cuts later this fiscal

New Delhi: Terming the RBI’s move to maintain status quo in its monetary policy as “predictable”, experts today expressed hope that the central bank would cut repo rate in the second half of the fiscal, taking cues from moderate inflation and the government’s reform initiatives. Reserve Bank’s decision to leave policy interest rates unchanged today was no surprise to market participants, in line with transparent and predictable monetary policy, Moody’s Investors Service said in a statement. “In the next few months, we expect continuity in the RBI’s policy making. We do not expect RBI’s shift to such a structure to have any significant implications for the conduct of monetary policy,” said Marie Diron, Senior Vice President, Sovereign Risk Group, Moody’s Investors Service. [caption id=“attachment_2846996” align=“alignleft” width=“380”] RBI Governor Raghuram Rajan. PTI[/caption] Reserve Bank Governor Raghuram Rajan today left interest rates unchanged in his last monetary policy review as inflation hit near 2-year high but said the central bank’s stance remains “accommodative”. Expecting ‘upside’ risk to his March inflation target of 5 per cent due to pay hike of central government employees following the 7th Pay Commission and sticky core inflation, which excludes food and fuel, he kept benchmark repurchase rate at 5-year low of 6.50 per cent. The larger than average monsoon rainfall will help maintain moderate food price inflation, contributing to keeping headline inflation within or close to target this year, Moody’s said. SBI Chairman Arundhati Bhattacharya said, “The RBI’s decision to maintain status quo was as per market expectations. The decision to frontload liquidity provisions through an announcement of Open Market Operations (OMO) is a well-thought out move as capital flows have been relatively slow this year given the global uncertainties, resulting in lower net foreign exchange acquisition.” “We believe transmission of rates will happen gradually over the next few months as credit growth picks up pace,” she added. Chanda Kochhar, MD and CEO, ICICI Bank said that no change in policy rate was in line with expectations. “The articulation of a continued accommodative policy stance is welcome. As stated in its April policy, the RBI has ensured adequate liquidity and brought the liquidity balance closer to neutrality, which is indeed commendable. The favourable monsoons and the momentum in policy reforms like the Goods and Services Tax augur well for the economy going forward.” Yes Bank CEO and MD Rana Kapoor said, “In the coming months, the disinflationary impact will be upheld by a favourable monsoon and structural policy reforms instituted by the government.”  Kapoor further said that notwithstanding the current pause, disinflationary impact along with reform initiatives will engender 50-100 basis points space for incremental monetary easing before the end of 2016-17. Shanti Ekambaram, President, Consumer Banking, Kotak Mahindra Bank said, “While risks of inflation remain, a host of positive factors, easy global liquidity and ample domestic liquidity indicate downward trajectory of interest rates in the second half of 2016-17.” The RBI governor today said risks to the March 2017 target of 5 per cent for headline inflation, which climbed to a 22-month high of 5.8 per cent in June, “continue to be on upside” on factors like food inflation, services and the effect of the Seventh Pay Panel implementation. Sunil Kumar Sinha, Principal Economist, India Ratings & Research, said, “As expected, the RBI kept the policy rates unchanged in the third bi-monthly policy review of 2016-17. Risks to the inflation outlook seem to be tilted to the upside and a status quo on policy rates has been the correct stance.” Naresh Takkar, MD abd Group CEO, ICRA said, “Under the unaltered inflation targeting framework, we expect lower consumer price inflation inflation in October-December to create space for additional monetary easing of 25 basis points in 2016, which should contribute to a further fall in yields of Government securities and commercial paper.” Arun Gopalan, Vice President at Systematix Shares and Stocks said**, “**The RBI Governor’s decision to maintain status quo was in-line with our expectations. The stand of the RBI in keeping the system flush with liquidity is in itself sufficient to keep yields and lending rates on a downward trajectory. Waiting for the monsoons to play out fully before initiating a rate cut is a wise decision. What was noteworthy about the policy was that there was no overt hawkishness. He mentioned a possible GST fueled inflation as being a one-time price adjustment, implying it may not lead to a structural increase in prices.” Getamber Anand, President – CREDAI National said said she was disappointed with the policy review. She was anticipating the RBI would take a more balanced and futuristic view and grant a cut as far as interest rates are concerned. “Unfortunately, we have been disappointed again. Having said that, the 150 bsp reduction in the repo rate that was granted until now has not really been passed down to the end user in form of either retail loans, home loans or any other loans. This needs to be taken up by the banks and lending institutions immediately. If the economy has to grow in double digits, real estate will need to be supported by a low interest regime, as is the norm across the world. Having seen inflation controlled at 5 percent, there is no reason for such a high interest regime. However, we have always been optimistic that the RBI in its wisdom, in the coming months will announce a rate cut so that the dream of a home for every Indian can be realized at a reasonable cost.”