RBI's move to keep repo rate unchanged on expected lines, says BS Jury

On the developmental and regulatory policies front, the RBI has announced a number of measures: SBI

Arundhati Bhattacharya

Chairman, State Bank of India

The Reserve Bank of India’s (RBI’s) decision to keep the repo rate on hold was on expected lines, even though the reverse repo rate was raised to six per cent, thereby narrowing the repo-reverse repo corridor to 25 basis points. Though this narrowing of the rate corridor may be viewed as rate stability, in an environment of surplus liquidity, it may effectively create downward rigidity for the lower part of the corridor. This is likely to push up the term structure of interest rates and may not allow the full benefits of abundant liquidity to manifest in the form of lower money market rates. Elsewhere, on the developmental and regulatory policies front, the RBI has announced a number of measures notably, substitution of collateral under the liquidity adjustment facility, allowing banks to invest in REITs and financial literacy; all these will go a long way in improving the financial system.  

Keki Mistry

Vice-Chairman & CEO, HDFC 

The decision to keep the repo rate unchanged was an expected move. The Reserve Bank of India (RBI) is adopting a wait-and-watch approach in assessing the direction of inflation. Benign global conditions and stable oil prices could be offset by higher food prices in the coming months because of El Niño and larger government spending. The RBI’s stance on liquidity management was interesting; the banking system has an excess liquidity of Rs 4.8 lakh crore because of the surge of deposits from demonetised currency notes. The RBI has admitted this surplus has had a significant impact. Moreover, continual surplus liquidity increases inflationary pressures over the medium term. To this effect, it is planning to introduce a Standing Deposit Facility, which will provide greater flexibility in liquidity management. 
 

Mihir Doshi

MD & CEO (India), Credit Suisse

The Reserve Bank of India’s (RBI’s) neutral stance confirms the improving outlook for the Indian economy and is a positive signal of the government’s intention to support growth, while maintaining credibility on achieving the inflation target. With the focus clearly on managing inflation and liquidity, coupled with the fading effects of demonetisation and the anticipated gross domestic product growth of 7.4 per cent, we expect a favourable impact on investor sentiment. Corporate India should find some comfort from the fact that there is still scope for further reduction in lending rates, and capital markets activity is, therefore, likely to remain robust. Foreign exchange markets have reacted positively to the RBI’s move, and though the debt markets have so far shown a muted response, we expect this weakness to be temporary. 
 

Rashesh Shah

Chairman & CEO, Edelweiss Group

The policy is in line with the Reserve Bank of India’s (RBI’s) continued neutral stance. The hike in reverse repo will result in increase in overnight call money and market rates, moving it closer to the policy rates. The impact of the reverse repo hike to an extent (though not fully) is similar to that of sucking excess liquidity from the system. While the move does increase the call money rates, one should not perceive it as a rate hike, but rather as a move to ensure that repo rate remains the operative policy rate. Remonetisation and improvement in external demand bode well for the economy with gross domestic product expected to touch 7.4 per cent in FY18. Importantly, the policy also clearly stated the importance of stressed asset resolution with a strong commitment to resolve and provide direction for growth within the banking system, which is welcome. 
 

Rajeev Talwar

CEO, DLF 

The policy was on expected lines. By giving greater returns to the banks, it should signal further cuts in interest rates for business and home loans. A combination of a pick-up in global output, the likely impact of El Niño on the monsoon, better transmission of past cuts, and hardening of most commodity prices means the Reserve Bank of India (RBI) is currently in a wait-and-watch mode. A key positive is the RBI’s focus on resolving banks’ stressed assets on a firm footing. If the RBI, along with the government, is able to find a solution, it will result in a huge boost to the economy. For the real estate sector, the RBI’s decision to allow banks to invest in REITs is a huge positive. It has the potential to boost the REIT market by offering a safe asset class to invest in and also provide competition to foreign institutions. We now look forward to detailed norms and guidelines for banks’ investment in REITs by May-end. 

Chanda Kochhar

MD & CEO, ICICI Bank 

The Reserve Bank of India’s (RBI’s) clear articulation on liquidity management is welcome and would ensure stability in markets by enforcing the sanctity of the operating rate, while addressing temporary liquidity imbalances. Money market rates would be anchored in a tighter band through the narrowing of the Liquidity Adjustment Facility corridor. The RBI’s continued focus on inflation targeting will reinforce confidence in the economy and continue to support capital inflows. The focus on resolution of stressed assets will help in renewing confidence and boosting investment and aggregate demand. Along with these, the policy also articulates other important developmental policies, such as expanding the investor base in REITs, which would help to expand and deepen domestic financial markets