What India Inc, Brokerages And Ratings Agencies Made Of RBI’s Rate Decision
The RBI cut its repo rate by by 25 basis points, citing ease in inflation.
The Reserve Bank of India cut its benchmark interest rate by by 25 basis points, taking advantage of easing inflation. The repo rate was lowered to 6.25 percent from 6.50 percent, the Reserve Bank of India said in a statement on Tuesday. That’s the lowest since January 2011.
The RBI said inflation is expected to remain close to 5 percent by the fourth quarter of 2016-17 with some upside risks seen to that forecast. But it appeared less confident about the inflation trajectory in 2017-18 and said the direct and indirect impact of an increase in House Rent Allowance as part of the Seventh Pay Commission awards may require a tightening of monetary stance.
The central bank also hinted at a shift in the way it deals with bad loans.
India Inc, brokerages and ratings agencies seemed divided over the future trajectory of monetary policy.
RBI To Remain Accommodative: SBI
The committee decision to cut repo rate by 25 bps was on the expected lines. With benign inflation trajectory going forward, RBI’s policy stance is expected to remain accommodative. Banks will continue to transmit rates based on evolving liquidity scenario.Arundhati Bhattacharya, Chairman, State Bank of India
Window Into Governor’s Thoughts: Mahindra Group
VS Parthasarathy, chief financial officer of Mahindra Group said that the policy served as a signal from the RBI, anchoring future expectations, while also praising RBI’s move to allow external borrowing for startups.
This policy was a window into the thoughts of the governor and the MPC. It is not only about the here and now, it is also about what the MPC thinks about risks and importantly it reveals the governor’s thoughts on structural matters. The focus will be on NPAs, financial market reforms, and financial inclusion for MSME. The policy has however stuck to monetary aspects and we have to wait to see the governor’s actions elsewhere. We trust he would continue to be vigilant, watching over the economic landscape with flexibility to act as the situation changes.VS Parthasarathy, CFO, Mahindra Group
Clear Hint To India Inc To Push For Growth: Muthoot Finance
The non-banking financial company expects the rate cut to boost credit environment in the country's financial system.
The 25 bps cut by the RBI to boost the liquidity in the system is a welcome move. We expect it will support the economy’s investment demand and uptick in credit environment. A relief on the cost of funds is awaited eagerly by the corporate India, which should help them to improve financial health and plan for the next leg of growth. With the pro-growth stance of the RBI, it gives a clear hint to India Inc to push for growth, take investment decisions as it can now foresee rates to soften further.George Alexander, Managing Director, Muthoot Finance
All Policy Levers Must Back Growth: FICCI
The 25-basis-point rate cut was "very timely" and will give a filip to the growth and demand environment, Harshavardhan Neotia, president of FICCI said. The industry body hopes that banks will now pass on the benefits of the rate cut.
Private investments may start to come back as interest rates head lower, growth picks up, and there is some resolution on the bad loan crisis, Neotia said.
The decision to supplement the demand conditions by maintaining an accommodative stance is definitely encouraging. The companies have reported an improvement in the capacity utilisation rates and demand is expected to gain further traction given the forthcoming festivities, however, there is still a need to assure that this turnaround is sustainable. At this juncture, it is important that all the policy levers are put into action to back growth. A moderate interest rate regime will lead to an uptick in interest sensitive sectors such as consumer durables, automobiles and housing.Harshavardhan Neotia, President, FICCI
Another Rate Cut Likely In December: JPMorgan
JPMorgan's Sajjid Chinoy expects another rate cut in December, while adding that the RBI’s 5 percent inflation target is achievable by March 2017.
RBI’s Thumbs Up To Government: Axis Bank
Saugata Bhattacharya, Chief Economist of Axis Bank, termed the unanimity of the rate cut decision as "remarkable". The cut in repo rate was a thumbs up to the government by the monetary panel members, he added.
Monetary Policy Panel Dilutes Previous RBI Framework: Nomura
The RBI surprised with a 25 basis point rate cut in its first monetary policy driven meeting, Nomura said, adding that the consensus was of a status quo policy.
The rate cut was not justified by a tempering of inflationary pressures but by tweaking the RBI’s inflation targeting framework which was adopted by the central bank under the governorship of Raghuram Rajan, the financial major said. Nomura said there was a clear dilution of that framework under Urjit Patel. The brokerage termed the new the inflation mandate ranging between 2-6 percent over the next five years – from the previous 4 percent target – as "too wide", and sounded skeptical on the target for the real interest rate.
We now expect another 25 basis point rate cut to 6 percent, likely in February 2017, although December 2016 is also a possibility. However, we do not believe that easing is justified on economic grounds, as inflation expectations have risen, core inflation is still sticky and there are upside risks to inflation next year (from a closing output gap and technical factors such as house rent allowance and GST implementation).Sonal Varma, Managing Director and Chief India Economist, Nomura
Rate Cut In Line With Expectations: Kotak Mahindra Bank
The rate cut was in line with their expectations and future monetary policy stance is likely to be driven by inflation data going forward, Kotak Mahindra Bank said in a statement.
The normal monsoon and record agricultural sowing have softened food prices, indicating that inflation will be on the desired trajectory. Monetary policy stance remains accommodative. It is likely to be data driven on inflation, with caution on impact of 7th Pay Commission. Overall growth estimates for the year remain at 7.6%. We shall continue to watch out for economic data and accordingly address transmission of interest rates.Shanti Ekambaram, President-Consumer Banking, Kotak Mahindra Bank
Governor Batting For Government: Mecklai Financial Services
Jamal Mecklai, Managing Director and Chief Executive Officer of Mecklai Financial Services too expects another rate cut by the RBI, going forward. He said the cut was in keeping with government’s expectations.
RBI Front Loading Rate Cut: India Ratings
The rating agency said the central bank is not giving adequate weightage to the cyclical aspect of food inflation. It had expected rates to remain status quo.
...this is clearly a case of front loading the rate cut and resting the hope on moderation of food inflation due to favourable monsoon and its impact on crop production particularly pulses, without giving adequate weightage to the lethal combination of structural/cyclical component of food inflation which has more than often surprised on the upside rather than on the downside in the recent past.Sunil Sinha, Principal Economist, India Ratings and Research
Good Tidings For Real Estate: Knight Frank India
According to Shishir Baijal, chairman of Knight Frank India, the rate cut carries good tidings, especially for the real estate sector.
A 25 bps cut in policy rate is encouraging and augurs well for the real estate sector. We do hope that the transmission of the rate cut is efficient and banks pass on the benefit to customers in similar magnitude.Shishir Baijal, Chairman and Managing Director, Knight Frank India
More Rate Cuts In The Offing: Fullerton India
Fullerton India expects more rate cuts if there is ample liquidity in the system.
We are hopeful that ample liquidity will enable continued transmission of this reduction, which will help further vitalise industry. The Reserve Bank is rightfully mindful of potential inflationary risks from the House Rent Allowance revisions and the minimum wage increase. We believe this will inform the medium term rate decisions, given the ambitious medium term inflation target of 4 percent.Anand Nataranjan, Head of Strategy and Business Execution, Fullerton India