| We believe that growth, especially consumer spending, has moderated in response to policy tightening by RBI. Economic growth has remained resilient and overall growth and investment in the economy remain on an even keel. In this context RBI's decision to keep key rates on hold reflects its concern for maintaining growth in the economy. RBI has successfully managed to calibrate credit growth and prevented the economy from overheating. By keeping rates unchanged, RBI has given a message that the economy is on track for soft landing. With deposit growth outstripping credit growth, the CRR hike would increase the cost of funds, put a squeeze on profitability of banks. |
| R Ravimohan MD & Region Head, Standard & Poor's |
| The policy announcement of keeping the key benchmark rates unchanged while raising CRR is along expected lines. While there is a healthy mix of high growth and low inflation in the domestic economy, global risks have amplified. The policy acknowledges the rising risks to domestic inflation from the sharp rise in global crude prices and elevated commodity prices. Even though growth is moderating in the interest-sensitive sectors, in view of the global concerns, RBI has not signalled an interest rate reduction but rather stability in rates at the current elevated levels. With the depleting stock of MSS bonds, RBI had to resort to a CRR hike to sterilise the impact of foreign inflows on domestic liquidity. |
| Chanda Kochhar Joint Managing Director, ICICI Bank |
| While the CRR hike will have an impact on current liquidity levels, we expect overall liquidity conditions to remain favourable. In view of the CRR increase, the easing of interest rates in the banking system seems unlikely. Measures to develop the bond, currency and derivatives markets like allowing cross currency options and commitment towards permitting market repos in the corporate bond market are a step forward in this regard.The policy indicates the development of a healthy financial sector and a stable environment. The policy seeks to guide the economy on its growth trajectory while adopting a watchful stance for indicators that may warrant regulatory action to mitigate systemic risk. |
| S Mahalingam ED & CFO, TCS |
| The mid-year review of the monetary policy has preserved the status quo. What is critical for the IT sector will be to watch the impact on the exchange rate. Will the exchange rate continue the current trend of volatile appreciation, which could be a challenge in keeping up the momentum of export-led economic growth. There are no easy answers to this quandary in the mid year review, though the central bank has reiterated its dislike of equity-based instruments of Participatory Notes once again. But with dollar inflows likely to increase on the back of interest cuts in the US, it is difficult to gauge whether curtailing this alone will be adequate to stem the rise in the rupee. |
| Sanjay Nayar CEO, Citi India |
| In the backdrop of policy measures taken recently for moderating capital inflows, RBI has been able to maintain status quo on policy rates with just a 50 bps hike in CRR for managing excess liquidity. While RBI is comfortable with the current pace of growth and price situation, the CRR increase stems from the concern on M3 growth running above targeted levels as well as the possibility of a fresh round of capital inflows that might get triggered by further rate cuts in the US. If capital inflows continue unabated, we should see more policy measures attempting to control the same and continued use of moderating tools such as CRR and MSS. |
| Vallabh Bhansali Chairman, Enam Securities |
| The RBI's decision to hike the CRR by 50 bps while keeping policy rates unchanged needs to be seen in the background of the avalanche of liquidity pouring into the Indian markets. FIIs have already invested ~$18bn in the market during the current financial year, of which half has come post the Fed rate cut. |
| More importantly, the CRR hike is an indication that interest rates in India may not come down in a hurry given the elevated inflationary concerns and money supply growth. The RBI continues to be ahead of other central banks on sounding out on the perils of excessive liquidity and attendant risks to asset quality of the banking system as also the risks posed by rising asset prices. |
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