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  1. RBI Credit Policy 2016: Here’s what industry experts feel about Urjit Patel’s second monetary policy

RBI Credit Policy 2016: Here’s what industry experts feel about Urjit Patel’s second monetary policy

RBI Credit Policy 2016: The Reserve Bank of India (RBI) on Wednesday kept the repo rate unchanged at a time when the industry as a whole expected a 25-50 bps cut in light of the recent demonetization drive by the Narendra Modi government.

By: | Published: December 7, 2016 7:18 PM
Industry experts, however, feel that even though RBI has defied a widespread expectation of at least a 25 basis points cut in the interest rates, there is an urgent need to focus on growth and create more jobs that will strengthen the economy. (Reuters) Industry experts, however, feel that even though RBI has defied a widespread expectation of at least a 25 basis points cut in the interest rates, there is an urgent need to focus on growth and create more jobs that will strengthen the economy. (Reuters)

RBI Credit Policy 2016: The Reserve Bank of India (RBI) on Wednesday kept the repo rate unchanged at a time when the industry as a whole expected a 25-50 bps cut in light of the recent demonetization drive by the Narendra Modi government. Industry experts, however, feel that even though RBI has defied a widespread expectation of at least a 25 basis points cut in the interest rates, there is an urgent need to focus on growth and create more jobs that will strengthen the economy. Here we take a look at the views of some industry experts on today’s monetary policy:

Bekxy Kuriakose, Head–Fixed Income, Principal PNB Asset Management: “Belying market expectations, RBI decided to keep key rates unchanged. Bond markets have expectedly reacted negatively given that 25 bps was already factored in, with some segments even expecting a 50 bps rate cut. RBI has clearly specified they need data and more time to evaluate the effects of demonetization and clearly do not wish to react disproportionately to “short term transient” effects. Global developments including sharp rise in US treasury yields and expected hike in US Fed funds rate also seems to have weighed on the policy move. And on inflation they seem to have noted the resistance of core inflation (ex food and fuel) to downward impulses.”

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Anuj Puri, Chairman & Country Head, JLL India: “Contrary to a wider perception that the policy rate will be cut by at least 25 basis points, RBI has kept the repo rate unchanged at 6.25%. However, growth outlook for the current fiscal year 2016-17 has been lowered sharply from 7.6% y/y projected earlier to 7.1% y/y at the moment. For the real estate sector, which is currently reeling under pressure from the recently-announced demonetization of high-value currency notes, a rate cut could have definitely allayed fears of a near-term loss of momentum. That said, even before the RBI’s announcement of its policy rates today, some banks have gone ahead and announced interest rate cuts on the back of improved liquidity in the system. This gives a lot of emphasis on the fact that the demand for mid-segment housing will continue to remain strong, since the salaried class predominantly uses bank loans to finance their home purchases. Near-term disruptions in cash-sensitive sectors such as retail, hotels and restaurants are going to transiently impact demand for commercial space, although with fresh supply of cash these problems will cease to exist.”

Anshul Jain, Managing Director, India, Cushman & Wakefield: “The RBI has kept the repo rate unchanged at a time when the market expected a 25-50 bps cut in light of the recent demonetization. However, the impact of the recent demonetization has resulted in excess liquidity with banks as they are flush with funds. This has prompted several banks to already reduce their term-deposit rates, which will bring down the cost of funds. Therefore, we expect commercial banks to transmit the reduced cost of funds in the form of cheaper home loan rates to customers over the next few months. The residential realty sector, which has been impacted by demonetization, would see some optimism driven by credit availability, which may result in higher number of enquiries in the coming months. The residential market will see a pick-up in demand if the availability of home loan at lower rates is accompanied by rationalization in home prices. However, the extent to which banks pass on the rate cut would determine the actual magnitude of benefit to home buyers. Going forward we expect to see a rate revision in the Jan–Mar quarter in 2017.”

Dinesh Thakkar, CMD, Angel Broking: “With inflation under control and expectations of an economic slowdown post demonetisation, we had factored in a 25 bps rate cut. However, RBI seems to be worried on inflation spiking up due to rising crude oil prices. RBI also has indicated that the growth momentum has started seeing some weakness and accordingly it has revised GVA growth for 2016-17, down from 7.6% to 7.1%. RBI has categorically said that their decision to keep rates unchanged had nothing to do the US Fed’s decision and their further course of action depends on a lot of data. We believe by next policy meet lot more clarity should be there, including inflation and the real impact of GDP for Q3FY17 based on corporate results, and RBI could go for rate cuts. However, looking at the current move, rate-sensitive stocks could remain under pressure in the near term.”

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Sunil Kanoria, President, ASSOCHAM: “By maintaining a status quo on the policy rates, the Reserve Bank of India has defied a widespread expectation of at least a 25 basis points cut in the interest rates, but the industry and the trade expected a little more clarity from the central bank on the time line for the demonetization disruption to end. The underlying message is that the things at this stage seem to be in a state of flux even as the RBI itself has revised downward the estimates of the GVA by 50 basis points. How the demonetization would play out for growth, lending rates or even inflation is not clear and the RBI makes no bones about it. In any case, a cut in interest rate would not have made much of difference to the credit offtake in the midst of the industry being over-leveraged and the consumer demand remaining tepid because of scrapping of the high value currency notes. Besides, the RBI has sounded a word of caution when it comes to the inflationary outlook even as it hopes to stick to the target of 5 per cent CPI inflation by the end of fourth quarter of 2016-17.”

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