Returns look safe
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| RBI has acted as referee in the game of interest rates and has blown the whistle. It has certainly its reasons - robust credit offtake, inflation fears, heightened global conflicts, and global rate hikes.
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| In one sweep, however, the rate hike settles the score in favour of the hawks who would be pleased with the pronouncement of pressure on rate hikes.
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| It will be interesting to watch what equilibrium gets established between investments in equity instruments and deposits as retail savers juggle returns. Lastly, with greater equalisation of rates, the mandated small saving rates and return on PFs look safe and the battle for reforming those areas may be postponed to another day.
R Ravimohan, MD and chief
executive officer, Crisil Small firm hit hard
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| The impact would vary on companies and projects. While big corporates with huge cash reserves might not feel the pinch, smaller corporations, which have no alternative but to borrow from the institutions to implement their growth plans, would be hit badly.
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| However, the psychological impact of today's rate hike would not be great as it was widely expected. For the past six months or so, interest rates have been going up and up.
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| This time also, it was expected that the apex bank would raise the interest rates. Therefore, the rate hike was factored in psychologically.
D D Rathi, executive director,
Grasim Inflation fighter
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| Major central banks across the globe, too, have been concerned over build-up of inflationary pressures. Domestic economic momentum has been strong and has manifested in higher credit growth and pressure on inflation and interest rates. The RBI's move underlines linkages to an evolving global economy and flags downsides risks to growth.
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| In this environment, hiking rates will put pressure on the cost of funds of banks and prompt them to look at re-pricing. This could affect credit offtake though the impact is unlikely to be significant.
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| The rate hike once again establishes the RBI's credentials as an inflation fighter, and is, hence positive for the rupee.
Neeraj swaroop, CEO-India,
Standard Chartered Bank Rethink on projects
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| The basic idea of raising interest rate to curb inflation is a bit fuzzy. Inflation is a supply-push phenomenon. Therefore, measures such as raising interest would have no impact on inflation.
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| On the other hand, it would raise the cost of capital and, thereby, adversely impact margins of the corporate sector, especially small and mid-size companies. This, in turn, would adversely affect the ability of the companies to invest.
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| New projects would be worst hit by the rate hike. Companies can't stop implementation of a project half-way because of the rate hike. But they would think twice before kicking off new projects
Siddhartha Roy, economic advisor,
Tata Group No hike for now
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| The policy review looks to finely balance growth momentum. The gap between PLR and sub-PLR rates is expected to narrow down further following the rate hike.
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| RBI has rightly emphasised on the need for rationalising deployment of resources. The central bank has also highlighted the point to focus on mobilising retail deposits which have durability (long term). This is necessary to manage asset and liabilities. The market continues to show liquidity overhang.
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| The daily absorption of excess resources in the system through liquidity adjustment facility has been over Rs 40,000 crore. Hence, we do not see the need to revise deposits rates at this juncture.
M Balachandran, chairman & MD,
Bank of India Action justified
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| The modest hike in repo and reverse repo rate is in line with our expectation. The policy action seems to be justified given the strong credit growth through the first quarter, rising crude prices, incomplete pass-through and the need to manage inflationary expectations.
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| Domestic factors are likely to dominate policy actions over the near future and the RBI has shown the willingness and ability to respond swiftly on policy directions.
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| Given that we have already seen a significant correction in the long-end of the yield curve over the last few months, further short term rates rises may not translate into equivalent shifts in long-end of yield curve.
Sanjay Nayar, CEO,
Citigroup India |
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