 "RBI's stance remain growth supportive, say experts")
The RBI cut its benchmark policy rate by 25 basis points on Tuesday, for the second time since the start of the year in a bid to help revive flagging growth in Asia's third-largest economy, but warned that its scope for further policy easing is limited.
Here is what the experts have to say:Naina Lal Kidwai, President, FICCI
The RBI’s decision to go in for another round of policy rate cuts was very aptly timed and was almost indispensable to revive the confidence of industry. We believe this would certainly lend some support to the flagging industrial growth.
Banks credit to industry has witnessed moderation. Credit to the industry increased by 15.2% in January, slower than the 20.2% increase a year ago. We do hope that RBI will follow this up with further rate cuts even though they have indicated that headroom for further cuts is limited.
Rupa Rege Nitsure, Chief Economist, Bank of Baroda
"In my opinion it is a very reasonable policy given the limited elbow room for RBI to ease more aggressively. But stance remains growth supportive. I do not expect immediate change in lending rates but around mid-April when liquidity situation is likely to return to normalcy, there is a possibility of transmission happening to some extent.
"The RBI had spoken of the limited scope for easing even in the January policy but have eased rates today. So I am surely expecting another baby cut of 25 bps in the May policy which will be influenced by the trajectory of core inflation which is expected to remain low. There is unlikely to be any aggressive easing, but easing will continue at a gradual pace going ahead."
Anjali Verma, Economist at PhillipCapital, MUMBAI
"RBI has continued to maintain limited room for monetary easing. I expect another 25-50 basis points of cuts in 2013. I expect headline inflation to decline based on expectations of a normal monsoon and falling crude prices. Even though there is a divergence between CPI and WPI, the moderation in core inflation below 4 percent has brought it within the RBI's 3-5 percent long-term average."
Rahul Goswami, CIO-Fixed Income, ICICI Prudential AMC
Today’s RBI policy announcements are on expected lines with a 25 bps cut in Repo rate and CRR remaining unchanged. In the light of moderating inflation and decelerating GDP growth, we expected the RBI to cut repo rate by 25bps to 7.50%. Going forward, with growth and inflation both moderating we see room for another 25-50 bps cut in rates by the RBI in the next policy.
RBI has left the CRR unchanged at 4% and has indicated use of tools like OMOs (Open Market Operations) in its efforts to actively manage liquidity. RBI has reiterated its concern on high Current Account Deficit (CAD) and headline inflation (WPI) numbers which continues to be outside of RBI’s comfort zone of 4-5%.
We expect moderation in WPI numbers over next 3-4 months and expect it to average at 6.00-6.50% for CY 2013. We expect growth numbers to be lower at 4.6-4.8% for FY13 against RBI’s projection of 5.50%. We continue to recommend the 2-5 year maturity space for better risk adjusted returns and income funds for benefiting out of reducing interest rate environment though with some volatility
A Prasanna, Economist, ICICI Securities Primary Dealership, MUMBAI
"I think the statement is balanced and is similar to January's stance. I wouldn't characterise it as dovish. The guidance emphasises the point that they are concerned about growth but space for more cuts is limited due to headline inflation and the divergence with CPI. We expect another 25 bps rate cut in May and then pause."
Vivek Mahajan, Head, Research, Aditya Birla Money
"The credit policy announcement was largely in line with market expectations. Going forward, the RBI has indicated limited headroom for further monetary easing on the back of sustained increase in retail inflation. Overall we believe, the credit policy is neutral for the markets. However the new political development today, will have implications in the short term and the markets could come under pressure."
Dinesh Thakkar, Chairman & Managing Director, Angel Broking
"The 25 bps reduction in the repo rate is on expected lines. Broader economic indicators of growth and industrial production reflect weakness but with monetary policy stance shifting to support growth, I expect a gradual improvement in FY2014. Going ahead, policy easing is likely to be limited by the wedge between CPI and WPI inflation (as food inflation remains elevated above double-digits) and widening of the current account deficit. I maintain my view of an additional 50 bp reduction in the repo for the rest of 2013."
Gautam Trivedi, Managing Director & Head of Equities – India, Religare Capital Markets
"The RBI’s mid-quarter review of monetary policy was on expected lines with a 25bps cut in the key Repo Rate and no change in banks’ Cash reserve Ratio. While the RBI has cut Repo Rate, what is important is that the central bank’s outlook remains hawkish as it sees headline inflation remaining range bound. We maintain another 50bps rate cut for the current calendar year."
Kishore Bang, Vice Chairman & Managing Director, Nirmal Bang Securities
"As per market expectations, the Reserve Bank of India (RBI) at its mid-quarter monetary policy review reduced repo rate by 25bps to 7.50%, after cutting repo by 25bps in its January policy. As a result, repo rate, reverse repo rate and MSF (marginal standing facility) stand changed at 7.50%, 6.50% and 8.50%, respectively. RBI keeps CRR (Cash Reserve Ratio) unchanged at 4.0%.
"Despite higher Wholesale Price Inflation and Consumer Price Inflation, a consistent fall in core inflation to the level of 4.97% during April-February 2013 from 7.52% in the corresponding period a year ago gave RBI the headroom to ease its monetary tightening stance. It reduced repo rate by 100bps in FY13. Despite the fact that the policy stance emphasizes addressing the growth risks, room for further monetary easing remains limited. Whilst it acknowledged the fact that the government adhered to its fiscal consolidation commitment, it stated that the quality and quantity of meeting deficits remains important.
"We expect headline WPI to be at 7.30% in FY13 despite a moderation in core inflation. We believe that a rate cut and change in monetary policy stance in itself may not bring about a revival in investment cycle and thereby growth. Monetary transmission is of critical importance as well as an improved demand situation in the economy would aid in reviving growth."
Sandesh Kirkire, CEO, Kotak Mutual Fund
“The 25 bps repo rate cut by RBI was on expected lines. With RBI seeing investment revival as a priority for resumption in growth, we expect the rates to decline further in the months to come. This, along with a relatively lower quantum of government borrowing in H1-FY14, has a precursor for an extended rally in the bond market. However, the lagged effect of fuel price hike, and supply imbalance in key commodities remain a risk.”
Samir Jasuja, Founder & CEO, PropEquity
“The repo rate cut of 25 basis points comes as a welcome move. This will help boost the real estate sector by providing the home buyers an access to home loans at cheaper rates, thereby stimulating demand. We expect continued monetary policy easing in the coming months.”
Rajiv Talwr, Executive Director, DLF
It is a positive outlook for the future. With the fiscal discipline introduced by the finance minister, I believe this a follow up action from the RBI. Everyone is cautiously treading towards achieving growth.