OP Bhatt
Chairman, State Bank of India
The important landmark in this policy statement is not so much the 25-bps hike in repo, reverse repo and CRR rates, as it is in RBI’s clear statements on where the economy is headed and a balanced approach between growth and inflation. For policy purposes, RBI has taken a baseline projection of real GDP growth for 2010-11 at 8 per cent with an “upside bias.” This is a critical clue. The economy may clock better growth rates than 8 per cent on its own steam, which implies growth concerns are no longer a deciding factor in policy making. To that end, RBI has been a little liberal in its indication on money supply growth in the current year at 17 per cent. That leaves the central bank’s policy menu limited for the rest of the year to moderating inflationary expectations. Together, this means the central bank will not, in the normal course, run a very tight liquidity system, but tackle inflation through a slew of other measures.
Chanda Kochhar
MD & CEO, ICICI Bank
The annual policy statement clearly articulates that growth in the economy is broad-based and driven by strong domestic fundamentals. Against this backdrop, and the need to anchor inflationary expectations, the process of shift in focus from “managing the crisis” to “managing the recovery” has been carried forward with a calibrated normalisation of policy rates. The 25-bps increases in repo and reverse repo rates and the cash reserve ratio are broadly in line with market expectations, given the strong economic growth and elevated level of inflation. At the same time, RBI has also articulated as a priority the availability of credit to meet the growth needs of the Indian economy. Thus, the statement has balanced the twin objectives of growth and price stability.
In summary, the annual policy statement is reflective of RBI’s comprehensive approach towards multiple objectives of growth, price stability, financial inclusion and orderly development of the financial sector, as India moves towards a higher growth trajectory.
Pawan Munjal
CMD & CEO, Hero Honda
Just as we didn’t see much impact in March during the previous policy hike, this hike is unlikely to lead to any dramatic increase in interest rates in the short term, although I won’t be surprised if RBI goes for another calibrated increase sooner than later.
Nevertheless, the RBI governor’s justifications for the policy action are quite significant, and they confirm some of our own apprehensions. He has expressed concern over the recent escalation in the prices of non-food manufactured items. As a manufacturing firm, whose costs are largely driven by material expenses, this is a concern for us.
What is also worrying is RBI’s view on the widening scope and nature of inflation. Last year, while inflation was driven entirely by supply-side factors, this time it is getting increasingly widespread, and perhaps we are seeing the first signs of demand-driven inflation.
RC Bhargava
Chairman, Maruti Suzuki
I think it is a very amicable policy. It is the minimum which could have been done looking at all the considerations.
What impact will it have on the lending rates from banks, nobody knows, as there is no established co-relation between repo, reverse repo and cash reserve ratio and what rates do banks have for different sectors.
One can’t say what will happen. But, I dont think there is much to be unhappy about. If the banks say that it (the hike) will not have much of an impact, then I dont feel any impact either on the auto sector.
Sanjay Nayar
CEO & Country Head, KKR India
RBI policy announcements were very much on expected lines, although I’d say- slightly behind the 50-bps hike required to give a stronger signal.
My personal view is that RBI has once again struck a balance between the growth imperative and inflation realities.Inflation across nearly all components is supply-led and what makes it sticky is lack of structural reforms and its reduction depends on markets, weather and oil. With that as the backdrop, the monetary policy continues to be accomodative with an eye on growth. Were private credit demand to pick up in the real sector, the one thing we have as yet not felt short of (liquidity) could tighten and become expensive.The signal needs to be picked up by fiscal managers, otherwise we could end up cramping the fledgling investment-led growth.
With more supply of paper around the corner, the bond yield could be headed for 8.5 per cent which would make it difficult for us to continue looking at the central bank for accommodation.
Pradeep Jain
Chairman, Parsvnath Developers
The credit policy announced by the Reserve Bank of India has been pragmatic, given the state of the economy. While the increased CRR, repo and reverse repo rates will check any runaway growth in money supply, the impetus on infrastructure lending will ensure that economic growth will continue unchecked. Overall, the policy has been balanced, strong message on inflation indicating a possible tightening of interest rates in the future, but allowing infrastructure growth with measures on infrastructure bonds.
Another welcoming step is a decrease in the substandard bank loan rates by 5 per cent, which now stands at 15 per cent, which will help infrastructure companies to acquire more funds from banks. Also, now banks can subscribe directly to the infrastructure bonds, which will completely solve the long-term funding problems faced by the companies.
For the realty sector, the focus on infrastructure growth is a welcome sign. I don’t foresee any increase in interest rates on home loans in the first quarter of the current financial year, as currently there is sufficient liquidity in the market, but definitely the banks shall be raising lending rates in the longer run. However, in the near-term, home buyers will not find interest rate as a stumbling block in their buying decisions. While the market was expecting a 50-bps hike in the rates. Now, the banks will not be in hurry to increase the interest rates from immediate effect and, even if it increases, it will have only a slight change. This is applicable to housing loan as well, which is a relief measure for the real estate sector.
