Given weak private investment in the face of low capacity utilisation, a reduction in the policy rate by 0.25 per cent will help strengthen growth, RBI Governor Raghuram Rajan said in the first bi-monthly monetary policy review for the 2016-17 fiscal, which began on April 1
The Reserve Bank of India (RBI) today cut the repo rate by 0.25 per cent and Governor Raghuram Rajan introduced a host of measures to smoothen liquidity supply so that banks can lend to the productive sectors and indicated accommodative stance going ahead. Given weak private investment in the face of low capacity utilisation, a reduction in the policy rate by 0.25 per cent will help strengthen growth, RBI Governor Raghuram Rajan said in the first bi-monthly monetary policy review for the 2016-17 fiscal, which began on April 1. Check out the analysts’ reaction below:
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI:
“The policy sounds dovish. Greater focus is on liquidity management, more importantly the commenatry is clearly guiding on further rate cuts, with four riders, namely: good monsoon, low headline CPI, softening core CPI and improving rate transmission. On these four parameters further rate cuts would play out.”
RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE:
“In all, today’s decision was more focused on addressing liquidity shortage and easing the transmission mechanism. There is a significant shift in their emphasis on the NDTL framework, narrowing the corridor around the operational repo rate and CRR changes. This is to ensure that the easy policy stance percolates to the real economy and materially lowers financing costs. These changes are likely to provide positive impetus to the financial markets in the near-term.”
RAJEEV TALWAR, CHIEF EXECUTIVE OFFICER, DLF LTD, NEW DELHI:
“The cut is a good one if it is passed on by the banks and bank rates come down. The governor has been very conservative. The government has been much more proactive by easing FDI rules and taking other measures. The economy is on a recovery path despite the RBI. This round goes to the finance minister.”
MAHANTESH SABARAD, SBI CAP SECURITIES LTD, MUMBAI:
“Whether we will have future rate cuts or not depends on what kind of stance the RBI Governor is taking. We expect there could be further rate cuts ahead. One of the important data points that the governor had to work with is that there is a normal monsoon forecast … which is the first preliminary forecast. Therefore it tells me that there could be another rate cut by 25 basis points sometime during May-July”.
SAUGATA BHATTACHARYA, SENIOR ECONOMIST, AXIS BANK, MUMBAI:
“Policy remains accommodative. Over the next two months, if rainfall conditions remain better and with an eye out on global economic conditions, they still have room for another 25 bps rate cut.
“On the rate corridor move, I think they are moving towards Phase II of the liquidity managment framework, keeping overnight rates closer to policy rates. They’re managing short-term rates well while keeping durable liquidity supply stable.”
ARVIND CHARI, HEAD OF FIXED INCOME AND ALTERNATIVES AT QUANTUM ADVISORS, MUMBAI:
“Its move to bring system liquidity to neutral along with the narrowing of the corridor to 50 bps and CRR maintenance at 90 percent will allow overnight rates to remain very close to the repo rate or even drift marginally lower. We expect proactive OMOs to get the ‘core’ liquidity back to zero. Market seems to have though as of now ignored the projected increase in inflation by RBI and its rhetoric on impact of sixth pay recommendation. Although the door for another cut is open, but the bar is high now.”
A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI:
“The rate action was in line with our expectations. The narrowing of the LAF corridor is understandable however it may cause some uncertainty about stability of the corridor. The change in liquidity stance is surprising given the uncertainty surrounding the external profile and the buildup of forex assets. It remains to be seen whether RBI will be successful in achieving neutral liquidity balance.”
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