Bankers today said the Reserve Bank of India's decision to hike repo rate by 25 basis points shows the apex bank's commitment to bring retail inflation to 4 per cent.
Bankers today said the Reserve Bank of India’s decision to hike repo rate by 25 basis points shows the apex bank’s commitment to bring retail inflation to 4 per cent. Lenders believe that the neutral stance adopted by the RBI shows it’s willingness to be accommodative with uncertainty over global growth. “The decision to keep the stance in neutral mode indicates RBI’s willingness to be flexible and accommodative with global growth continuing to be uncertain,” said Rajnish Kumar, chairman, State Bank of India. After increasing the repo rate by 25 bps in its June policy review, the RBI today again hiked the key policy rate by 25 basis points to 6.5 per cent.
Its decision to raise repo rate by 25 bps for the second time in succession is a clear desire to frontload the rate hike cycle, said Kumar. Standard Chartered Bank chief executive officer (India) Zarin Daruwala said, “The 25 basis points hike reaffirms RBI’s commitment to bringing CPI inflation to 4 per cent on a durable basis.
The bond market sentiment was boosted by a balanced policy guidance and retention of the ‘neutral’ stance.” HDFC’s chief economist, Abheek Barua, said, today’s policy decision suggests that the RBI seems to be taking a long term view on inflation rather than remaining purely data dependent. “Given the upside risks to inflation, discussed extensively, another policy rate hike cannot be ruled out,” he said.
Barua, however, said if there is an escalation in trade war risks and a resultant global output compression, then the RBI could be prompted to stay on a prolonged pause. Indian Banks Association’s chairman (officiating), Shyam Srinivasan, said though there are several risk factors to growth which could tilt on either side, the RBI has not only maintained the growth projection of 7.4 per cent for this fiscal, but also projected a higher rate of 7.5 per cent for the first quarter of next year as well. “This could cheer the markets,” he noted.
Yes Bank’s managing director and chief executive officer, Rana Kapoor, said, “With peak of CPI inflation now behind us, and monetary transmission playing out gradually hereon, I expect a pause in the remainder of FY19.” Bandhan Bank managing director and chief executive officer Chandra Shekhar Ghosh said with the uncertainties on the external front and the pressure on inflation, the RBI has taken the right decision.
“The impact of the rate hike will be seen with a lag effect, giving the RBI time to decide on the next course of action,” he added. IBA’s Srinivasan said co-origination of loans by banks and NBFCs could possibly open a new chapter on innovative lending and bringing together the expertise of both the parties. “All these reforms could help in strengthening the financial sector,” he added.
Rating agency Crisil believes the RBI will be on hold hereon unless higher-than-anticipated upside risks to inflation from crude oil, stronger demand conditions and food prices materialise. India Ratings and Research’s principal economist, Sunil Kumar Sinha, said by keeping monetary policy stance neutral, the apex bank has kept the window open to move the policy rate in future in either direction subject to data. “With this rate hike, it is unlikely that there would any more hike in FY19,” he noted.