 "BS Jury on bi-monthly monetary policy review")
ARUNDHATI BHATTACHARYA
Chairman, State Bank of India
The first policy decision by MPC was more or less along the expected lines with a rate cut of 25 bps from 6.5 per cent to 6.25 per cent. The market, however, was divided on the quantum of the cut. The policy sounds cautious on the inflation trajectory with the target of achieving CPI inflation at five per cent by Q4 FY17. With good monsoon, the pressure from food prices is likely to abate and the inflation trajectory is expected to remain under control in the coming months, beginning November. This will give RBI further scope to cut rates. With the MCLR regime in place, banks are taking baby steps in reducing their interest rates. On a monthly basis, SBI has reduced its one-year MCLR by 25 bps. With this rate cut, the lending rates are expected to come down further. Liquidity conditions are also favourable with the system in surplus mode. Core liquidity has increased from Rs 33,200 crore in August to Rs 48,700 crore in September. Comfortable liquidity conditions will ensure that the rate cut transmission continues.
Vice-chairman & CEO, HDFC
The newly-formed MPC's unanimous decision to cut the repo rate by 25 basis points to 6.25 per cent was broadly on expected lines. Inflation is showing a downward trend as the CPI in August 2016 came down to 5.05 per cent compared to 6.07 per cent in the previous month. The investment cycle has been uneven and easing of policy rates will be a positive signal to revive private investment spending. With the IIP data showing sluggishness, the decision to cut the repo rate has come at an appropriate time. I welcome RBI's decision to introduce detailed guidelines to relax the asset classification norms, based on feedback from banks. Further, RBI aims to make the S4A scheme more effective and provide relief to the banking sector. It is important to provide greater confidence to the banking sector to lend to industry as private sector investment cycle picks up. In my view, RBI's ability to significantly cut rates in the short- to medium-term will be constrained due to a number of factors.
Chief Financial Officer, L&T
The MPC's, decision to cut rates by 25 basis points will bring cheer to business and consumer sentiments and will hopefully lead to the much-needed investment revival. Although the crucial responsibility of any central bank is to control inflation, it cannot turn a blind eye to growth requirements. Most of the macro parameters now are favourable and inflation tamed, the time has come to shift focus towards growth again. Despite the headline GDP growth being around 7.5 per cent, a large part of it is still being driven by consumption spending. The investment outlay which contributed significantly to the country's economic growth in the period 2003-08 is largely absent, as many private sector enterprises are burdened by excess capacities and high financial leverage. The banking system is reeling under significant non-performing loans and capital deficiency. It is, therefore, critical that RBI and the government work in tandem to revive the capex cycle.
Chairman & CEO, Edelweiss Group
The monetary policy review - the first under Urjit Patel and under MPC - decided to cut rate by 25 bps, much on the expected lines. The policy statement suggest a balanced-to-dovish undertone. Specifically, taking cues from the falling trend in neutral policy rates around the globe, RBI also lowered its assessment of the neutral policy rate to 1.25 per cent from 1.5-2 per cent range considered earlier. While RBI did cite upside risks to near-term inflation projections it seems to be taking comfort from the supply-side reforms that the government is undertaking. In case of NPAs, the RBI Governor suggested that the problem needs to be tackled with both firmness as well as pragmatism. At the same time, it needs to ensure that credit to productive sectors is not undermined. Overall, it was a balanced policy based on consensus decision. The tone is tilted more on growth side and to that extent, we found the stance dovish. We foresee a good possibility of another 25-bp rate cut in the rest of the FY17.
India Equity Strategist, Credit Suisse
Growth is back as a monetary policy objective. In the last three years, the market believed that RBI was primarily concerned about inflation though it was never explicitly stated. The MPC's first policy statement clearly enunciates this change by stating its objective as "achieving CPI inflation at five per cent by Q4 FY17 and the medium-term target of four per cent plus/minus two per cent, while supporting growth". Cutting the real rate target to 125 bps (from 150-200 bps earlier) also reflects this stance. Credit Suisse Equity Research has been expecting rate cuts up to 100 bps as our research suggests that rising agricultural productivity is creating surpluses across most food categories. Thus, agricultural income growth which was at 14 per cent a year between 2005 and 2014 fell to five per cent in the past two years. And this is unlikely to revive anytime soon. While this creates big challenges for policymakers due to compounding of the job creation problem, it opens up the window for lower interest rates for a longer period.
CEO, Deutsche Bank India
The 25-bp rate cut by RBI signals positive intent and should expedite transmission. What is most encouraging is that MPC was unanimous in arriving at this decision. In our view, the growth-inflation mix should continue to be supportive of further cuts over the next 12 months. The decline in vegetable and other food prices is likely to result in sub-five per cent inflation print in the months ahead, with the possibility of CPI even falling below four per cent in the December-January period. While growth momentum is likely to improve going forward, but not at a pace that would raise concerns within RBI of demand-led inflation pressure. The government, too, deserves strong credit for its reformist zeal and sincere efforts to address supply-side constraints. With the central bank indicating that it is willing to work with a lower real interest rate (probably 1-1.25 per cent instead of 1.5- 2 per cent) and keeping in view the projected CPI trajectory, another rate cut appears justified. Consequently, we expect RBI to cut the rate again by 25 bps in the December policy.
Chairman, State Bank of India
The first policy decision by MPC was more or less along the expected lines with a rate cut of 25 bps from 6.5 per cent to 6.25 per cent. The market, however, was divided on the quantum of the cut. The policy sounds cautious on the inflation trajectory with the target of achieving CPI inflation at five per cent by Q4 FY17. With good monsoon, the pressure from food prices is likely to abate and the inflation trajectory is expected to remain under control in the coming months, beginning November. This will give RBI further scope to cut rates. With the MCLR regime in place, banks are taking baby steps in reducing their interest rates. On a monthly basis, SBI has reduced its one-year MCLR by 25 bps. With this rate cut, the lending rates are expected to come down further. Liquidity conditions are also favourable with the system in surplus mode. Core liquidity has increased from Rs 33,200 crore in August to Rs 48,700 crore in September. Comfortable liquidity conditions will ensure that the rate cut transmission continues.
Vice-chairman & CEO, HDFC
The newly-formed MPC's unanimous decision to cut the repo rate by 25 basis points to 6.25 per cent was broadly on expected lines. Inflation is showing a downward trend as the CPI in August 2016 came down to 5.05 per cent compared to 6.07 per cent in the previous month. The investment cycle has been uneven and easing of policy rates will be a positive signal to revive private investment spending. With the IIP data showing sluggishness, the decision to cut the repo rate has come at an appropriate time. I welcome RBI's decision to introduce detailed guidelines to relax the asset classification norms, based on feedback from banks. Further, RBI aims to make the S4A scheme more effective and provide relief to the banking sector. It is important to provide greater confidence to the banking sector to lend to industry as private sector investment cycle picks up. In my view, RBI's ability to significantly cut rates in the short- to medium-term will be constrained due to a number of factors.
Chief Financial Officer, L&T
The MPC's, decision to cut rates by 25 basis points will bring cheer to business and consumer sentiments and will hopefully lead to the much-needed investment revival. Although the crucial responsibility of any central bank is to control inflation, it cannot turn a blind eye to growth requirements. Most of the macro parameters now are favourable and inflation tamed, the time has come to shift focus towards growth again. Despite the headline GDP growth being around 7.5 per cent, a large part of it is still being driven by consumption spending. The investment outlay which contributed significantly to the country's economic growth in the period 2003-08 is largely absent, as many private sector enterprises are burdened by excess capacities and high financial leverage. The banking system is reeling under significant non-performing loans and capital deficiency. It is, therefore, critical that RBI and the government work in tandem to revive the capex cycle.
Also Read
Chairman & CEO, Edelweiss Group
The monetary policy review - the first under Urjit Patel and under MPC - decided to cut rate by 25 bps, much on the expected lines. The policy statement suggest a balanced-to-dovish undertone. Specifically, taking cues from the falling trend in neutral policy rates around the globe, RBI also lowered its assessment of the neutral policy rate to 1.25 per cent from 1.5-2 per cent range considered earlier. While RBI did cite upside risks to near-term inflation projections it seems to be taking comfort from the supply-side reforms that the government is undertaking. In case of NPAs, the RBI Governor suggested that the problem needs to be tackled with both firmness as well as pragmatism. At the same time, it needs to ensure that credit to productive sectors is not undermined. Overall, it was a balanced policy based on consensus decision. The tone is tilted more on growth side and to that extent, we found the stance dovish. We foresee a good possibility of another 25-bp rate cut in the rest of the FY17.
Neelkanth Mishra
NEELKANTH MISHRAIndia Equity Strategist, Credit Suisse
Growth is back as a monetary policy objective. In the last three years, the market believed that RBI was primarily concerned about inflation though it was never explicitly stated. The MPC's first policy statement clearly enunciates this change by stating its objective as "achieving CPI inflation at five per cent by Q4 FY17 and the medium-term target of four per cent plus/minus two per cent, while supporting growth". Cutting the real rate target to 125 bps (from 150-200 bps earlier) also reflects this stance. Credit Suisse Equity Research has been expecting rate cuts up to 100 bps as our research suggests that rising agricultural productivity is creating surpluses across most food categories. Thus, agricultural income growth which was at 14 per cent a year between 2005 and 2014 fell to five per cent in the past two years. And this is unlikely to revive anytime soon. While this creates big challenges for policymakers due to compounding of the job creation problem, it opens up the window for lower interest rates for a longer period.
CEO, Deutsche Bank India
The 25-bp rate cut by RBI signals positive intent and should expedite transmission. What is most encouraging is that MPC was unanimous in arriving at this decision. In our view, the growth-inflation mix should continue to be supportive of further cuts over the next 12 months. The decline in vegetable and other food prices is likely to result in sub-five per cent inflation print in the months ahead, with the possibility of CPI even falling below four per cent in the December-January period. While growth momentum is likely to improve going forward, but not at a pace that would raise concerns within RBI of demand-led inflation pressure. The government, too, deserves strong credit for its reformist zeal and sincere efforts to address supply-side constraints. With the central bank indicating that it is willing to work with a lower real interest rate (probably 1-1.25 per cent instead of 1.5- 2 per cent) and keeping in view the projected CPI trajectory, another rate cut appears justified. Consequently, we expect RBI to cut the rate again by 25 bps in the December policy.