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BS Jury on bi-monthly monetary policy review

Rajiv Talwar

Business Standard
Arundhati Bhattacharya
Chairman, State Bank of India

The Reserve Bank of India's move to maintain status quo was according to market expectations. The policy statement reinforces that any adjustments in repo rate will be data-dependent in future, but in the same breath mentions that near-term inflation risks are on the downside and that disinflationary trends are getting entrenched.

The announcement of calibrated cut in the Held To Maturity ceiling to 22 per cent by September 2015 is a welcome and non-disruptive move. Allowing five per cent of net demand and time liability (NDTL) towards calculation of liquidity coverage ratio (LCR) is also a step that helps banks enormously.

The creation of a central repository on frauds will enable banks to have an effective borrower credit history.


  Chanda Kochhar
MD & CEO, ICICI Bank

The monetary policy statement reiterates RBI's focus on its long-term policy and development objectives. RBI's stance with respect to management of systemic liquidity has also been clearly articulated in previous statements and the current monetary policy actions reiterate these. The recognition of five per cent SLR holding towards high quality liquid assets is a welcome move and will enable banks to meet the 60 per cent liquidity coverage ratio requirement from January 1, 2015, in a non-disruptive manner. RBI has also reiterated its focus on strengthening the financial sector in India, developing financial markets and promoting greater access to finance. The creation of a Central Fraud Registry and proposed guidelines with respect to declaring borrowers as non-cooperative are major steps and will strengthen banks' credit origination and recovery frameworks.

Keki Mistry
Keki Mistry
Vice-Chairman & CEO, HDFC

The market was unanimous in its view that key policy rates would remain unchanged. This perhaps reflects the fact that RBI is articulating its stance on monetary policy more coherently. Upward pressures on inflation will begin to wane with a better than expected monsoon and lower oil prices. Nonetheless, RBI remains cautious, citing the need to improve supply-side bottlenecks and does not rule out future possibilities of intensifying geopolitical risks that could lead to oil price spikes. With the investment cycle taking longer to revive, credit growth has dropped to a 13-year low. This is also partly due to the base effect, corporates raising resources from alternative sources and lower borrowings by oil marketing companies. Retail credit, however, remains strong, led by a 17 per cent year-on-year growth in housing loans. There is more optimism that credit off-take will pick up over the next two quarters.

Vivek Gambhir
Vivek Gambhir
MD, Godrej Consumer Products Ltd

The policy is in line with RBI's focus on taming inflation. However, as this comes at a time when some underlying indicators are heading in the right direction, it could have been a good time for a rate cut. Economic growth is vital. Overall, consumer sentiment is up and India has ranked first in Nielsen's recent global consumer confidence report. Inflationary pressures are easing; there is a drop in WPI and the latest S&P's outlook upgrade for India should translate into improved investor confidence. The government's positive intent needs to be backed by fiscal and structural changes. The focus should be on providing more money to consumers. The emerging middle-class and rural consumers are aspiring for branded consumer goods but have been stymied. Policy changes to stimulate demand and ease bottlenecks need to be quickly implemented. Reforms like passing the GST at the earliest will be critical to fast-track growth.

Rajiv Talwar
Rajeev Talwar
ED, DLF

Everyone in Mumbai will justify the policy and react to it positively. Yet, everyone in Mumbai will crave for greater growth. We have reached an inflexion point where the two seem in conflict. RBI had earlier urged the government to take steps besides the monetary policy for inflation control. The finance ministry having taken some steps, even crude oil prices have been positive for India. Some out-of-the-box thinking is essential for lowering rates and keeping a watch on inflation. The governor needs to pay greater attention to the growth story. The time that slips by never returns. India's promise lies in the growth story, not on inflation control only. Economists and everyone in Mumbai may say keep rates high to reduce inflation. But high rates alone will not bring down the inflation. He has come from a country where the cost of money is low. How does he expect an economy like ours to grow where cost of money is high?

Rashesh Shah
Rashesh Shah
Chairman and CEO, Edelweiss Group

RBI's move was expected; the policy guidance was on a hawkish side. Going by the policy and commentary by the RBI governor in recent days, it is fairly clear RBI is in no hurry to declare victory over inflation. He has stated he wants to fight inflation once so that nobody has any doubt on the inflation fighting credentials of RBI. After all, moderate and stable inflation (and inflation expectations) are foundations of sustained uptrend in economic activity. RBI also seems to be mindful of the fact that an ultra-accommodative monetary stance in the US is gradually coming to an end. No doubt, India's current account deficit is much more respectable today than a year ago; so are forex reserves. Yet, RBI does not want to be complacent. It acknowledged when global interest rates rise, its elbow room to set domestic policy rates is reduced. Given these considerations, I expect a fairly long pause in policy rates.

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First Published: Oct 01 2014 | 12:29 AM IST

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