Experts views on RBI policy

The Reserve Bank of India cut cash reserve requirements for banks in a move to ease tight liquidity, signaling a policy shift towards reviving growth after nearly two years of fighting inflation.

With core inflation still sticky, the RBI as expected left its policy repo rate unchanged at 8.50 percent for the second consecutive review after raising rates 13 times between March 2010 and October 2011, which made it one of the most hawkish central banks anywhere.

It cut the cash reserve ratio for banks by 50 basis points.

COMMENTARY:

Sailesh K Jha, Head Of Asia Strategy, Skandinaviska Enskilda Banken, Singapore

"Very dovish statements. My takeaway is this is negative for INR as inflation will re-accelerate by February, growth will surprise high, and fiscal concerns are looming. We expect USD/INR to be close to a bottom.

"I don't see a cut in the CRR to be a precursor to (a) change in the key benchmark rate in the March policy. We are hawkish on the outlook for inflation. There is a possibility of a CRR cut in the coming policy but I don't see a policy rate cut coming yet."

Radhika Rao, Economist, Forecast, Singapore

"Cut in the CRR could be perceived as a precursor to change in the key benchmark rate, with odds for a 25 bps cut in March, earlier than we had anticipated.

"Accompanying comments still see the central bank maintain a cautious tone on inflation, despite signs of softening growth and external headwinds, which highlights the tight bind the authorities are in.

"Nonetheless, policymakers will draw confidence from the food-prices driven slowdown in inflation and lower rates in the coming months. We look for 75 bps cut by end-2012."

Saugata Bhattacharya, Economist, Axis Bank, Mumbai

"The cut in cash reserve ratio is an excellent step that the Reserve Bank of India has taken in reversing its monetary policy stance, but it is not an indication that the next move would be a rate cut. They have very clearly specified that the rate cut would depend on the fiscal environment."

Arun Kejriwal, Strategist, Kris, Mumbai

"I think it's a little bit of a gamble -- if this can provide a thrust to the economy which is slowing down, so be it. We are used to having unpleasant surprises, but this time, it's a pleasant surprise."

Jagannadham Thunuguntla, Strategist And Head Of Research, SMC Global Securities, New Delhi

"The CRR cut is more of an indicator that the repo rate and reverse repo rate cuts are around the corner and I believe that would happen in March. I think growth and inflation are equally important for the central bank now."

Shubhada Rao, Chief Economist, YES Bank, Mumbai

"If the fall in inflation trajectory going forward is in line with expectation, then the cut in CRR should be followed by a 50 basis points cut in the repo rate in March.

"... If monetary policy transmission has to be effective, then a 50 basis point cut is needed to stimulate investment demand."

Sumedh Deorukhkar, Senior Economist, BBVA, Mumbai

"RBI has clearly said growth concerns have come center-stage despite lingering inflationary pressures.

"So we expect the central bank to go for a 25 bps repo rate cut in (its) March review. Deeper rate cuts will be seen only after RBI sees clear signs of easing in the core inflation.

"We expect repo rate cut worth 150 bps by end of December."

Sujan Hajra, Chief Economist, Anand Rathi Securities, Mumbai

"Our sense is that the cut in cash reserve ratio is a reaction to the acute liquidity deficit that is persisting. As far as the inflationary situation is concerned, it has not materially changed apart from some softening in food prices.

"We think that in the second half of next fiscal year, inflation will start going up again and hence the window for monetary easing is limited. We expect 75 to 100 basis point of rate cut by October, and at least another 50 basis point of CRR cut during the same period."

Anubhuti Sahay, Economist, Standard Chartered Bank, Mumbai

"Their cautious stance is not surprising as imported inflation has emerged as a reason to worry. Going forward we expect inflation to be in the 6.5-7.0 percent range by March and a repo rate cut in Q2 2012."

Ashutosh Datar, Economist, IIFL, Mumbai

"Prima facie it looks like the central bank may go for further reduction in the cash reserve ratio if liquidity stays tight in coming months and so the sense of certainty on a rate cut in March has reduced.

"That said, the RBI may continue with the aggressive pace of bond buy backs through open market operations if liquidity deficit stays above Rs 1 lakh crore despite today's CRR cut."