The Reserve Bank of India (RBI) left interest rates unchanged as expected on Thursday, underscoring its concern about inflation following the sudden spike in global oil prices even as economic growth has turned sluggish.
Analysts view the central bank's comments as "less dovish" as it has said inflation risks remain and this "will influence the both the timing and magnitude of future rate actions".
VIVEK RAJPAL, INDIA RATE STRATEGIST, NOMURA, MUMBAI
"RBI is not as dovish as expected. It has rather sounded cautious on inflation. Though, in their guidance, they have hinted that future rate actions will be towards lowering the rates.
RBI, being not so explicitly dovish, may lead to a rise in OIS rates, which in our view, will be a receiving opportunity, especially in the front end, as liquidity conditions will ease in April and the rate cut cycle beginning in April policy remains a high probability."
JONATHAN CAVENAGH, FX STRATEGIST, WESTPAC, SINGAPORE
"No real surprise after the stronger inflation data yesterday. They cut the CRR (cash reserve ratio) late last week, so are doing what China are doing from a liquidity perspective and trying to manage things that way. Still think a cut is a strong chance but have to see inflation cool further from here.
"A rate cut in April depends on what the government budget delivers, if it's deemed expansionary/inflation then chances of a RBI rate cut are reduced in our view."
INDRANIL PAN, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI
"A status quo policy is what we had expected and that is what it is. The statement clearly highlights the risk to inflation in the form of crude prices, suppressed inflation and the likely rupee depreciation. Clearly the statement also highlights the fiscal deficit being an added source of risk for inflationary pressures."
RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA
"It would not have made sense to cut policy rates before the Budget because it will give a roadmap on fiscal consolidation, and that will be a relevant policy contributor.
"Inflation has been emphasised in the policy because the complete pass through of global oil prices has not happened. Going by experience if the Budget turns out to be populist, then we may see policy staying more accommodative, and which will keep inflation structurally high.
"We're seeing sentiment induced move in the 10-year yield. It may ease to around 8.15 percent by March-end."
ASHISH VAIDYA, EXECUTIVE DIRECTOR AND HEAD OF INTEREST RATES, UBS, MUMBAI
"The RBI's tone is uncertain. The fact is, the RBI is cognizant of inflationary pressures, and the eventual pass-through of global oil prices, if and when it happens. There are political pressures too. The pressure will be seen on the rupee.
"To my mind, I think the budget will project the fiscal deficit at 5 percent of GDP.
"The bond market will temporarily bounce to 8.30 percent, and then get sold off. I maintain my projection of the 10-year yield to be around 8.47 percent by March-end. We are likely to see huge supply of bonds, and probably without the OMOs (open market operations) because liquidity deficit should start getting adequate."
GAJENDRA NAGPAL, CEO, UNICON FINANCIAL INTERMEDIARIES, NEW DELHI
"I think the RBI would wait for little longer (before starting to reduce rates). Obviously they had done the CRR cut only recently. I think that's strong enough for the markets to move on. To that extent, I think it would be a little ambitious if you start to expect a rate cut. It depends on how the prices and inflation play out."
RADHIKA RAO, ECONOMIST, FORECAST PTE LTD, SINGAPORE
"The post-decision commentary was less dovish that we had anticipated, as the RBI highlighted several factors that still pose upside risks to inflation, including the suppressed price components. This lends us to believe that RBI stands ready to loosen policy levers if the government plays its part and puts forth a credible fiscal consolidation plan to shape the inflation outlook hereon.
"However we are not very optimistic on the latter given political compulsions and with the central bank stressing yet again that timing and magnitude of rate action (cuts) depend on inflation, scope for a cut in April are muddied further."
A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI
"The guidance is surprising in that RBI seems to be more worried about inflation after the headline and core inflation have come down. The reasons cited such as high oil prices and suppressed inflation are likely to remain a concern in the quarters ahead also. Based on today's statement, one may conclude that RBI will never be able to cut rates. However. I believe that the central bank will cut rates in April; presumably tomorrow's budget will pave the way for a change in RBI's thinking."
PRADEEP MADHAV, MANAGING DIRECTOR, STCI PRIMARY DEALER, MUMBAI
"Inflation is still a risk as pointed out by RBI. The uncertain geopolitical situation is also a danger, especially for crude prices. A full pass-through of the past rise in global oil prices too has not happened in India, so it is wise to adopt a wait-and-watch approach on rates.
"But that said, if most things remain constant, I still think there is a fair chance of a rate cut in April because by then we will have an idea of the fiscal deficit situation. A cut then will also help in pushing the borrowing programme for 2012/13 that is likely to be front-loaded."
JAGANNADHAM THUNUGUNTLA, HEAD OF RESEARCH, SMC GLOBAL SECURITIES, NEW DELHI
"The decision clearly reflects that inflation remains the anchor point for the RBI policy irrespective of the concerns about growth.
"The central bank wants to wait and see what the government does on the fiscal management front in the budget tomorrow. The rate cut will come once the RBI becomes comfortable with the fiscal situation as well as the oil prices."
NIRAV DALAL, PRESIDENT AND MANAGING DIRECTOR, DEBT, CAPITAL MARKETS, YES BANK, MUMBAI
"A lot now depends upon how growth in the global economy shapes up. If the world economy continues to do well as recent data points suggest and consequently if commodity prices stay where they are or rise further, then the April rate cut from RBI might not be a done thing."
R.K. GUPTA, MANAGING DIRECTOR, TAURUS MUTUAL FUND, NEW DELHI
"First thing is yesterday (data showed) the inflation rate started going up. The second thing is the railway freight has already increased by 20-25 percent and there is a possibility that petrol and diesel prices will also go up in due course of time because of the global crude prices. So, inflation is likely to go up. I think the RBI is concerned on that account that's why they did not reduce the rate of interest. My fear is that if that scenario continues, the RBI may not cut rates in the next review also."
