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Ahead of Budget 2016 presentation less than a month from now, Governor Raghuram Rajan kept the RBI repo rate (policy rate) unchanged at 6.75 percent on Tuesday, as widely expected. Governor Raghuram Rajan has opted to wait until after Budget 2016 at the end of February to decide on whether to cut interest rates further. Raghuram Rajan warned on Friday against straying from the path of fiscal consolidation or relaxing the fight against inflation. Rajan, in his statement on Tuesday, said the central bank would stay "accommodative" but would look forward to the government's budget on Feb. 29, saying it needed to be one that supports growth and controls spending. Here are 5 reactions from analysts:
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1. RBI KEEPS REPO RATE UNCHANGED: ARVIND CHARI, HEAD OF FIXED INCOME AND ALTERNATIVES AT QUANTUM ADVISORS, MUMBAI – "The RBI is rightly waiting for the government's fiscal response. Although a small fiscal slippage is unlikely to impinge on inflation, but the need to maintain the fiscal discipline is imperative to keep investor sentiment buoyant. The RBI remains accommodative and if the government's budget looks to boost growth through reforms and keeping spending under check, we expect an inter-meeting cut post the budget – 25 basis points, may be even 50 BPS."
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2. R SIVAKUMAR, HEAD OF FIXED INCOME, AXIS ASSET MANAGEMENT, MUMBAI – "Clearly they are watching out for the budget to the extent that if the fiscal situation remains tight we will see more rate cuts to support growth, but if the government elects to support growth through fiscal spending then the quantum of rate cuts will be limited. "There is uncertainty around inflation next year due to the pay commission, they have alluded to that. In the near term CPI will remain elevated because of the way the CPI is calculated, therefore RBI will wait for more data to see the one-off effect of the pay commission before they can form a medium term view of the trajectory of inflation.
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3. RBI KEEPS REPO RATE UNCHANGED: A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI – "The policy was along expected lines. We continue to expect a residual 25 BPS cut in repo rate in April, assuming the government sticks to its fiscal roadmap.”
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4. RBI KEEPS REPO RATE UNCHANGED: RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCE HOLDINGS, MUMBAI – "Given the flexible inflation targeting framework that we have formally adopted, I don't see any scope for rate reduction beyond 25 bps which may happen around budget time only after the RBI is convinced about the fiscal consolidation roadmap of the government. It may happen outside the policy also if the RBI feels the government has stuck to its fiscal deficit target, just to endorse the action. The RBI cannot take contradictory measures by not reducing repo rate and then infusing liquidity. Liquidity tightness has happened due to mismatch between demand and supply."
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Raghuram Rajan: RBI Governor Raghuram Rajan said on Monday he was not in favour of devaluing exchange rates to boost economic growth, signalling India will not join other countries such as China or Japan in pushing down their currencies.“I personally feel sustained devaluation is neither feasible nor a good strategy,” Rajan said in a speech at a conference on medium scale enterprises in Trivandrum, in southern India. (AP)
