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Arundhati Bhattacharya
Chairman, State Bank of India
The policy decision was on expected lines. However, with the central bank expecting inflation to remain at subdued levels between now and August, front-loading a repo rate cut may be an option. According to RBI estimates, the CPI-based inflation is expected to remain at current levels in the first quarter of 2015-16, moderating to around four per cent by August but firming up to 5.8 per cent by the end of the year. The central bank batting for more retail participation in the G-sec market is a welcome move. Although the G-sec market is predominantly institutional, RBI has initiated several steps to promote retail/individual investments such as the introduction of the non-competitive bidding scheme. Allowing issue of rupee bonds will facilitate internationalisation of the domestic currency. Allowing cooperative banks to issue credit cards and setting up ATMs is a step in the right direction in enabling a seamless access to bank finance.
Chief Executive Officer, Deutsche Bank India
While the Reserve Bank of India (RBI) kept all the key policy rates unchanged in the current policy review, it has committed to maintaining an accommodative monetary policy stance, which is encouraging. Further reduction in the repo rate would be contingent on transmission of previous policy rate cuts, supportive inflation outlook, acceleration in structural reforms and developments in the external environment with low disruptive influence. Clearly, more rate cuts would be required to ensure effective and meaningful monetary policy transmission in the coming months. Based on this premise and the recent forward guidance provided by the RBI, we expect the policy repo rate to be cut by another 50 basis points, in clips of 25 basis points in the June and August monetary policies. Otherwise, it is difficult to see a material softening in bank lending rates.
Chief Executive Officer, Thermax
The central bank's policy announcement was pretty much on expected lines. That is no surprise considering that the governor has already effected a 25 basis-point reduction to the base rate mid-course. With global crude oil prices expected to remain stable in the coming months owing to the Iran nuclear agreement and subdued commodity prices, we expect inflation to remain low in the short- to medium-term. This could enable the central bank to further effect rate cuts of up to 100 basis points during the course of the current financial year. It is unfair on the part of banks not to pass on the cut in interest rates. The central bank should put in place a mechanism to make the pass-through mandatory rather than leaving it for the banks to decide.
Executive Director, DLF
The Reserve Bank of India (RBI) governor has held himself back, possibly waiting for a similar initiative by the other partner, the banks. RBI has already cut rates twice but banks have still not passed on the same to their borrowers. At the time of earlier policy announcements, RBI was waiting for the government to act. The Union Budget has shown that the government is willing to act. Banks are keeping an eye on the extent of their non-performing assets and also whether they have adequate cover. However, the governor has unequivocally said that banks do not have any reason to state that their cost of funds is high. A pass-through in rate cuts by banks definitely seems due. These cuts, in all probability, will serve as the next 'kicker' to a surge in demand for real estate products, especially housing.
Chairman and Managing Director, Religare Enterprises
The policy was on expected lines. With the full impact of two rate cuts earlier this year yet to reflect on the lending rates, it is evident that the central bank does not want to go ahead with more cuts just yet. Also, the impact of unseasonal rains in March on food prices and consequently on the inflation trajectory, is still not fully known. At the same time, by encouraging banks to shift from average cost of funds to marginal cost of funds, the central bank is nudging them to cut lending rates. We believe a combination of factors such as monetary transmission by banks, monsoon, easing of supply-side issues, fiscal consolidation and signs of normalisation of the US monetary policy will decide the future course of action. While the policy stance remains accommodative, the timing of future rate cuts remains uncertain. We expect an additional 50 basis-point cut this calendar year.
MD, regional head of research, South Asia Global Research, Standard Chartered Bank
The status-quo April policy keeps the door open for some more rate cuts but is conditional on the progress of a host of parameters. In particular, the lack of transmission of two inter-meeting rate cuts seems to be a concern for RBI. If seasonal factors and the measures undertaken to improve this transmission yield lower bank lending rates in this quarter, RBI might be more comfortable with easing policy rates further. The onus is also on the government to improve the supply-side bottlenecks and ensure that the volatility in inflation is reduced. Dynamics of food inflation remain the key unknown and hence the monsoon forecasts would be critical. The near-term decline in inflation (assuming normal monsoons) could open up the space for rate cuts. However, if RBI's inflation forecast of 5.8 per cent for March 2016 holds true, then the flexibility to reduce rates would be modest.
