RBI keeps rates unchanged in its monetary policy review: How India Inc reacted

By: | Updated: August 4, 2015 5:17 PM

The Reserve Bank of India (RBI) has kept rates unchanged in its bi-monthly policy statement, maintaining its stance to prioritise inflation over growth concerns.

rbi monetary policy reviewThe Reserve Bank of India (RBI) has kept rates unchanged in its bi-monthly policy statement, maintaining its stance to prioritise inflation over growth concerns. (Reuters)

The Reserve Bank of India (RBI) has kept rates unchanged in its bi-monthly policy statement, maintaining its stance to prioritise inflation over growth concerns. According to experts, the decision was in line with market expectations.

RBI believes that the policy statements upto June were front loaded and there has not been enough transmission of rate cuts to the ground level. The RBI will monitor transmissions by banks in terms of lower lending rates, full monsoon performance by September and external events like commodity prices and Federal Reserve rate policy.

Below are a few quotes from India Inc on RBI’s policy review stance

SBI Chairperson Arundhati Bhattacharya
“Any rate cut by the bank would depend on a lot many factors including credit growth and she does not see any room for any cut in the near future. The bank had raised the rates by 30 basis points only when RBI had hiked the policy rate by 75 basis points, and the reduction in the bank’s rate has also been 30 basis points when the central bank has cut the policy rate by 75 basis points.”

Debopam Chaudhuri, chief economist and vice president, Research at ZyFin Research
“Although the central bank has acknowledged a seeming recovery in consumer demand, this may start to wane out soon. Domestic consumers have pegged their spending plans to declining borrowing costs. However, as observed by the RBI, there has been no significant reduction in this. Unless banks are more forthcoming in passing on the 75 basis points cut in policy rates to their lending rates, recovery in consumer demand would continue to remain a distant reality, impacting banks’ profitability as well.”

Murthy Nagarajan, head-fixed income, Quantum AMC
“The RBI as expected has maintained the policy rates; given that they had front-loaded the initial rate cuts between January and June. Although, our base case suggests rate cuts later in the year; but there is a possibility of a 25 basis points cut in the September policy post clarity on FED action and the full impact of monsoon on food prices. We found the statement more accommodative as they find inflation risks balanced which suggests that one should expect rate cuts ahead and it is only a matter of timing.”

Hiren Dhak, associate fund manager, Bonanza Portfolio
“As expected, the apex bank kept the rates unchanged. The actual trend in inflation hence forth would play a deciding factor in how RBI structures its monetary policy in the future. Unless, there is sharp improvements in inflation and after it has been seen that inflation doesn’t show stickiness, we believe RBI may take a call on cutting rates. By then, we may also see a full transmission of rates upto the ground level by the commercial banks. In all, we may still see RBI maintaining a cautious approach and status quo up to the next quarter atleast.”

Kunal Shah, fund manager, debt, Kotak Mahindra Old Mutual Life Insurance
“We believe if monsoon performance is satisfactory and if global commodity prices remain benign, it will open space for more easing. RBI has highlighted that non-food inflation uptick is worrisome and needs to be monitored carefully.”

Dinesh Thakkar, chairman and managing director, Angel Broking
“The status quo maintained by the RBI in terms of key policy rates was on expected lines. The RBI has however stated that it would continue to maintain accommodative policy stance in the coming months on expectations of moderation in inflation. The RBI reduced its inflation forecast for Q4FY2016 downwards by 0.2%. We believe, the CPI would remain modest at 5.5 per cent in the last quarter of 2015-16. With the CPI falling within the RBI’s target range, there could be around 50 basis points reduction in the policy rates in the second half of the current financial year.”

Chandrajit Banerjee, director general, CII
“RBI’s decision to maintain the status quo on policy rates indicates a guarded approach towards monetary easing to restrain inflationary expectations and is in alignment with market expectations. CII is of the view that the policy of frontloading the interest rate cuts should have been allowed to continue as this would have sent a strong signal that the RBI aggressively addressing the growth risks in the economy accruing from weak demand conditions which are holding back investments. CII expects that the spotlight would be shifted towards growth and RBI would resume monetary easing in its next monetary policy when there would hopefully be much more clarity about the inflation trajectory, the normalcy of monsoons and the possible Federal Reserve actions.”

Rana Kapoor, managing director and chief executive officer, YES Bank and president, ASSOCHAM
“While the RBI has refrained from cutting rates today, the policy undertone has leaned on the neutral-to-dovish side. Oil prices and monsoon have evolved favorably over the last 1-2 months with disinflationary forces being reinforced by government’s astute management of the food economy and improving quality of spending. This in my opinion should create room for at least 50-75 bps of incremental monetary easing hereon upto March 31, 2016.”

Jyotsna Suri, president, FICCI
“The decision of Central Bank to keep the policy rate unchanged is disappointing for the industry. Given that the industrial growth still remains volatile and demand conditions have not seen much improvement, there is a need to give policy stimuli to encourage demand and investments.”

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