What experts say as RBI keeps repo rate unchanged at 6.50%

The RBI also signalled the prospect of another cut later this year if monsoon rains dampen upward pressure on food prices

The Reserve Bank of India (RBI) kept its policy interest rate unchanged at a five-year low of 6.50% on Tuesday, while signalling the prospect of another cut later this year if monsoon rains dampen upward pressure on food prices.

Commentary

Marie Diron, Senior Vice-President, Sovereign Risk Group, Moody's Investors Service, Singapore:

"Looking forward, we do not expect a significant change in the monetary policy stance. Rather, the transmission of monetary policy will influence India's economic developments and credit profile."

"First, the effectiveness of the monetary policy framework in maintaining inflation at moderate levels could be tested this year. The RBI highlighted today the uncertain trajectory of inflation."

 

"A renewed sharp depreciation of the rupee, potentially linked to volatility in global financial markets, could also stoke inflationary pressures. Moreover, with details of the implementation of the Pay Commission's recommendation still unclear, the outlook for wage, housing and overall consumer price inflation remains uncertain and subject to upside risks."

Rupa Rege Nitsure, Group Chief Economist, L&T Finance Holdings, Mumbai:

"Some factors are pointing to upside risks to inflation such as seasonal spikes in vegetable prices, added burden of tax on services inflation, and some factors are creating uncertainty like geopolitical situation on crude oil prices and monsoon. Naturally, it was not a time to take a rate action. But I think what is positive is that they would like to take thorough review of MCLR lending rate regime. Transmission has not happened much on the longer interest rate side. As long as the structural stresses continue in large corporates, provisioning needs for banks will continue on higher side. As long as that continues, there will be limited chance for interest rates to come down on longer tenure loans."

A Prasanna, Economist, ICICI Securities, Primary Dealership ltd, Mumbai:

"Our view is that repo rate has bottomed out, there are no further rate cuts. RBI's commentary on inflation seems to be moving along in that direction."

"Base case is system should be able to manage FCNR redemption, and if there is pressure, RBI has indicated they will be stepping in if there's dollar shortage."

"The timeframe in which liquidity neutrality will be achieved will depend on external conditions. If balance of payments' profile is favourable then it can be in the beginning of next year, else will extend to the next financial year."

Madhavi Arora, Chief Economist, Kotak Mahindra Bank:

"Though they have raised issues with regard to inflation, overall accommodative stance continues. If and when they get a chance to revisit the rate cut stance, I think there still is a scope for one more policy rate cut, probably not immediately but definitely second half of the year."

"That said, the immediate focus of the central bank would move to liquidity management. I think that is the key policy movement you would see in the next few months."

Abheek Barua, Chief Economist, HDFC Bank, New Delhi:

"This is the most tepid policy I've come across in many years. I don't think this policy gives us additional information from what the April policy did. One source of comfort is that there is an assurance to manage dollar and rupee liquidity if there is pressure during FCNR outflow. There's also a caveat that people should not take it for granted depending on the level of the rupee whether there will be intervention or not."

"The other thing is statement is couched in many conditions. I think to see the policy as hawkish is a bit premature. There is room for at least one rate cut until December."

"I think the policy is very neutral and tepid in every sense of these two words."

Sanjiv Bhasin, EVP-Markets & Corporate Affairs, India Infoline:

"So market had discounted a no-change policy and jobs data from the U.S. further extinguished hopes of a rate hike by the Federal Reserve. Also, tone of the governor is more on extension of his term rather than the monetary policy. So this was all given."

"Inflation creeping up in the last month would have been a dampener because we know that monsoon is expected to be very good but right now with inflation rising, it was given that he (Rajan) would leave monetary policy unchanged."

"Any chance of a rate cut will now be more in August with a 25 basis points cut and by December repo should come down to 6%."

R Sivakumar, Head Of Fixed Income, Axis Assest Management, Mumbai:

"There is recognition that there is some upward momentum on inflation given the recent data. The data as it is today suggests that inflation is hovering around 5% mark which limits the number of rate cuts that they can do. However, if there is a downward movement on inflation on account of monsoon they might be able to see some opportunity to change the stance."

"The current stance of monetary policy is already accommodative and the best thing they can do is to continue with improving liquidity which will allow banks to lend at lower rates. What they are trying to signal is that they expect more actual market rates to fall in terms of bank lending rate."

Prabal Banerjee, President, International Finance, Bajaj Group:

"Rajan is obviously better off by not touching repo rate. He is partially managing the risk by managing liquidity push which should help Indian economy and making the policy accommodative and introducing other measures like MCLR etc. Obviously, another factor playing in his mind is that though Monsoon is supposed to be good -- still it is playing mirage and some amount of uncertainty still exists. An overall view of the monetary policy would be -- optimal solution as it stands today -- but by making it an accommodative policy, Governor Rajan is keeping his windows open for future."