1. Raghuram Rajan’s RBI effects surprise repo rate cut, analysts say real effect ‘not much’, look to future

Raghuram Rajan’s RBI effects surprise repo rate cut, analysts say real effect ‘not much’, look to future

Governor Raghuram Rajan-led RBI cut its repo rate by 25 basis points to 7.75 percent in a surprise move on Thursday...

By: | New Delhi | Updated: January 15, 2015 6:40 PM
repo rate cut, RBI rpo rate cut, NSE, National stock exchange, RBI rate cut, RBI interest rate, Raghuram Rajan

‘Raghuram Rajan’s RBI will closely look at government fiscal deficit targets and how credible they are along with how the inflation trajectory is. We expect another 50 basis points cut in 2015/16.’ (In picture: (L) Guv Raghuram Rajan and PM Narendra Modi)

Governor Raghuram Rajan-led Reserve Bank of India (RBI) cut its repo rate by 25 basis points to 7.75 percent in a surprise move on Thursday, making its first reduction in a year as inflation showed signs of slowing and the government was making efforts to contain the fiscal deficit.

The RBI added it could cut interest rates further should inflation continue to ease, while it would also monitor the government’s progress on fiscal consolidation.

COMMENTARY
V.S. PARTHASARATHY, CFO, MAHINDRA & MAHINDRA, MUMBAI:
“It’s a signal and it will have a salutary effect. Real effect at 25 basis points is not going to be very much, however, it is the start of a cycle that is what the industry and I certainly hope.
“Sometimes a stimulus is all about giving a cue… this is a cue.”

Read StanChart Report: RBI likely to ease further
Read SBI Report: Beginning of a rate easing cycle

UPASNA BHARDWAJ, ECONOMIST, ING VYSYA BANK, MUMBAI:

“RBI’s surprise cut was a reaction to the much slower CPI and WPI inflation witnessed recently. While we do not expect any move on the Feb. 3 meeting, we expect RBI to further cut repo by 50 basis points through the next two policies.”

RAJEEV TALWAR, EXECUTIVE DIRECTOR, DLF LTD, NEW DELHI:
“This is the signal people were waiting for and it shows economic recovery is well on its path. The impact will be very positive and home buyers should return.

“Immediately, it will boost leasing and sale of commercial property. On a consolidated basis, home sales will receive a boost in the first and second quarters of the next fiscal year.”

Check out the reactions to the poll on RBI rate cut we asked on January 14, 2015:

DANIEL MARTIN, SENIOR ASIA ECONOMIST AT CAPITAL ECONOMICS, SINGAPORE:
“Price pressures are likely to remain subdued. Tumbling global oil price should keep fuel inflation contained, even as the government raises taxes. There is also little sign of a rebound in core price pressures.
“Meanwhile, the economy could certainly use some support, with the industrial sector, in particular, clearly struggling to gain any momentum.
“Given all these, we think today’s surprise move marks the start of a loosening cycle. We expect another 75 basis points of cuts in both the repo and the reverse rates over the next year or so, to 7.00 percent and 6.00 percent, respectively.”

N.R. BHANUMURTHY, ECONOMIST, NATIONAL INSTITUTE OF PUBLIC FINANCE AND POLICY, NEW DELHI:
“This is a surprise move in the middle of the war on inflation. This will only create more demand, but not really help on the credit uptake.
“I don’t think it will be transmitted to the consumers at the moment. It will lead to a reduction in the deposit rate. I don’t think the banking sector will pass on the benefits by reducing the lending rate. They will first reduce the deposit rate because they need to clean up their own books first.”

SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI:
“Largely, the falling crude, moderating demand pool inflationary forces and reform pro-activeness by the centre have led to this cut.
“With the budget round the corner, the central bank’s 25 basis points cut reflects a cautious ease and we might see another 25 bps cut in the April 2015 policy if current disinflationary pressure persists.”

Also read:

* Lone ranger Raghuram Rajan fights for RBI autonomy amid rate cut rants

* Dec 2 meet: When Raghuram Rajan refused to cut rates

* Dec 2 meet: On interest rates, markets proposed, RBI Guv Raghuram Rajan disposed

* RBI can’t flip-flop on interest rate: Raghuram Rajan

DEVENDRA KUMAR PANT, CHIEF ECONOMIST, INDIA RATINGS & RESEARCH, NEW DELHI:
“RBI will closely look at government fiscal deficit targets and how credible they are along with how the inflation trajectory is. We expect another 50 basis points cut in 2015/16.”

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI:
“I think this is entirely driven by crude oil prices decline, and also the fact that prices across the food basket have also consistently declined for the last five-to-six months.
“This is going to help sentiment more rather than actual investment. There is a very high likelihood that banks will pass it on because credit demand has collapsed. This has happened before budget. That’s why it is entirely driven by whatever is happening globally. RBI cannot remain insensitive to that.”

Take the poll, tell us how prescient you were:

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI:
“I think the inflation momentum from here on will give significant comfort to RBI, and we now could expect another round of rate cuts post-budget.
“In our opinion, we continue to believe that rate cuts are likely to be front loaded and we could see the next dose of rate cuts likely of a larger magnitude post-budget. We are expecting 50 bps rate cuts between now and June.”

KILLOL PANDYA, SENIOR FUND MANAGER, LIC NOMURA MUTUAL FUND, MUMBAI:
It is very unorthodox to cut rates outside of policy reviews. Rajan has duly exercised his right. There will be rally in bonds, although in anticipation of more rate cut rates. This is a confirmation that we are in a interest rate softening cycle.”

RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE:
“Today’s cut possibly paves the way for another 50 bps cuts heading into FY16, provided the pre-conditions of quality fiscal correction and waning inflation risks hold. In the meantime, an eye needs to be kept on the narrowing (domestic) output gap and shifts in the U.S. rate hike expectations.”

  1. S
    sunil ranjan
    Jan 16, 2015 at 1:40 am
    It is a very good initiative of RBI and i hope that it will help in reducing fiscal deficit which is a major problem of our nation due to gold basically. It will also help by increasing our consumption and investment .
    Reply
    1. S
      sunil ranjan
      Jan 16, 2015 at 1:40 am
      It is a very good initiative of RBI and i hope that it will help in reducing fiscal deficit which is a major problem of our nation due to gold basically. It will also help by increasing our consumption and investment .
      Reply
      1. S
        sunil ranjan
        Jan 16, 2015 at 11:50 pm
        It is a very good initiative of RBI and i hope that it will help in reducing fiscal deficit which is a major problem of our nation due to gold basically. It will also help by increasing our consumption and investment .
        Reply

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