MUMBAI (Reuters) - The Reserve Bank of India (RBI) kept its policy interest rate unchanged at a five-year low of 6.50 percent on Tuesday, while signalling the prospect of another cut later this year if monsoon rains dampen upward pressure on food prices.
COMMENTARY
RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCE HOLDINGS, MUMBAI:
"Some factors are pointing to upside risks to inflation such as seasonal spikes in vegetable prices, added burden of tax on services inflation, and some factors are creating uncertainty like geopolitical situation on crude oil prices and monsoon. Naturally, it was not a time to take a rate action. But I think what is positive is that they would like to take thorough review of MCLR lending rate regime. Transmission has not happened much on the longer interest rate side. As long as the structural stresses continue in large corporates, provisioning needs for banks will continue on higher side. As long as that continues, there will be limited chance for interest rates to come down on longer tenure loans."
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A. PRASANNA, ECONOMIST, ICICI SECURITIES, PRIMARY DEALERSHIP LTD, IN MUMBAI:
"Our view is that repo rate has bottomed out, there are no further rate cuts. RBI's commentary on inflation seems to be moving along in that direction.
"Base case is system should be able to manage FCNR redemption, and if there is pressure, RBI has indicated they will be stepping in if there's dollar shortage.
"The timeframe in which liquidity neutrality will be achieved will depend on external conditions. If balance of payments' profile is favouable then it can be in the beginning of next year, else will extend to the next financial year."
(Reporting by India Newsroom; Editing by Sunil Nair)