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The Reserve Bank of India kept interest rates unchanged at 8% on Tuesday as widely expected, staying focused on containing inflation while adopting a more dovish tone in response to the government's call for help to revive economic growth.
Expert comments:
A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI
This policy is as per expectation. The guidance is dovish which leads us to believe that there is a significant chance of policy easing by February subject to inflation and government's efforts to meet fiscal targets. At this point we'll go with 25 basis points. The bond market is running ahead, but there's more conviction about policy easing by February.
KUMAR RACHAPUDI, SENIOR RATES STRATEGIST, ANZ, SINGAPORE
The RBI assessing the risks to its January 2016 inflation forecast as 'balanced' - previously the risks were biased upside - is significant. In fact, the RBI said if the current inflation momentum and changes in inflationary expectations continue, a change in the monetary policy stance is likely early next year. Think this paves way for a rate cut in early 2015 unless global commodity prices aggressively reverse their fall. We like staying long Indian bonds here.
SANDEEP BAGLA, ASSOCIATE DIRECTOR, TRUST GROUP
The change in stance by RBI is very heartening. The easing of commodity prices has meant that the central bank has room to cut rate by around 75 bps for the next full year. Market has tried to price in this possibility by rallying strongly. There's a good chance that the 10-year yield will fall to 7.90-7.95% in the immediate term.
R SIVAKUMAR, HEAD OF FIXED INCOME, AXIS ASSET MANAGEMENT, MUMBAI
Clearly, a very dovish statement by the governor; they have acknowledged that inflation is treading expectations and that there is scope for monetary easing in early 2015. Markets like clarity and they are reading this as a signal that barring any surprises, a Feb 2015 rate cut looks likely.
SANDEEP NANDA, CHIEF INVESTMENT OFFICER, BHARTI AXA LIFE INSURANCE, MUMBAI
The policy has come in line with market's expectations. There is no rate cut but guidance is definitely dovish. People will now expect rate cuts from February onwards. RBI has brought down its expectations to market's level. There can be more positive surprises expected given the way the commodity prices are behaving.
ARVIND CHARI, HEAD OF FIXED INCOME AND ALTERNATIVES, QUANTUM ADVISORS, MUMBAI
We have maintained that the RBI will only move post certainty on growth polices and supply reforms in the budget. We thus expect the first rate cut to be immediately post-budget in the first half of March and it can be a 50 basis point cut.
KILLOL PANDYA, SENIOR FUND MANAGER-DEBT, LIC NOMURA MUTUAL FUND
RBI's policy is very balanced and pragmatic. There should be no complaints from market participants. The policy is dovish relatively so there would be continued expectations of rate cuts in future. The trajectory would remain dovish but government's needs to do its part.
R K GUPTA, MANAGING DIRECTOR, TAURUS ASSET MANAGEMENT, NEW DELHI
This is what we were expecting. Probably rates may not be reduced before April 2015. Reducing 25 basis points is not going change anything in the corporate sector. If inflation continues to remain low, foreign currency reserves remain comfortable, current account deficit remains under control, probably you can expect a 50-75 basis point cut in April 2015, after the budget. RBI will take a very, very cautious approach.
SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI
Today's action is aimed at containing the medium-term inflationary pressure and is well in line with the RBI's sanctity towards its previous tone. However, the tone for today's policy seems more softer on account of positive developments happening to the intermittent data points. The prolonged low price regime seen in international crude and the government's effort in containing the fiscal deficit would weigh positive in forthcoming policies of 2015 and might lead to a first rate cut in the first quarter of 2015.
DEVENDRA KUMAR PANT, CHIEF ECONOMIST AND SENIOR DIRECTOR, (HEAD-PUBLIC FINANCE), INDIA RATINGS AND RESEARCH
The policy has come in line with our expectations. There are high chances of a rate cut in Feb 2015. Decline in inflation has come mainly from falling crude oil prices. Oil prices will remain low but may not see a sharp fall next year. Food inflation may also rise due to summer pressure. Base-effect will keep inflation lower until December.
J VENKATESAN, EQUITY FUND MANAGER, SUNDARAM ASSET MANAGEMENT COMPANY, CHENNAI
The central bank has made a strong dovish statement. Inflation is clearly trending downwards, and based on that the RBI has clearly stated that the monetary stance will be reviewed early next year.
If the interest rate is cut it would be sentimentally beneficial, but things will not pick up just because of rate cuts. A strong reforms push is needed to revive economic growth, that is where the cycle had got stuck.
SHASHWAT SHARMA, PARTNER- FINANCIAL SERVICES, KPMG IN INDIA
“The inflation which has come down today is not because of structural changes in the domestic economy but due to fall in international prices of crude, which has fallen to a historical low. Therefore, we understand and appreciate the RBI’s stance on no cut in interest rates and look forward to structural changes by the Government in the domestic economy.”
LAKSHMI IYER, CHIEF INVESTMENT OFFICER ( DEBT) & HEAD PRODUCTS, KOTAK MUTUAL FUND
“The central banker continued to maintain its policy stance. This was in line with our expectation. The central banker may be of the opinion that; the favorable base effect last year, rather than the actual price moderation, may be causing the CPI moderation. Having said that, the central banker has given an indication of change in policy stance (even out of schedule) was the moderation in inflation to exceed expectation. We believe that RBI may be waiting to assess the CPI inflation data which is to be released in mid-Dec. This may enable them to resolve on the nature of inflation (base effect or supply led) and provide the needed window to reproach the policy”.
DINESH THAKKAR, CHAIRMAN & MANAGING DIRECTOR, ANGEL BROKING
“The RBI has kept key policy rates unchanged this time around, but the policy tone has clearly become far more dovish. In fact, the policy more or less indicates that by March-April 2015 itself, the RBI is likely to start cutting interest rates. Not only that, once the budget 2015 contours are known and inflation trajectory becomes increasingly certain, the RBI has also indicated that the rate cut cycle, once it starts, is likely to endure for a more sustained period of time. We have in any case held the view that broader interest rates, including bond yields are likely to head around 100bps lower over the next year, and the current policy further reinforces that. In our view, lower interest rates are likely to be a key positive for the investment cycle and GDP growth going forward. We remain positive on domestic cyclicals and markets overall.”
SAMANTAK DAS, CHIEF ECONOMIST & DIRECTOR (RESEARCH), KNIGHT FRANK INDIA
“As expected, the RBI has kept key policy rates unchanged to ensure that inflationary expectations are brought down in the country. Last quarter’s GDP growth at 5.3% and a not so inspiring manufacturing sector performance did raise hopes for a potential rate cut. Also, with recent sales in the real estate sector remaining subdued across the country, stakeholders were hoping for a rate cut this time to initiate tractions in the market. However, given the current scenario of high optimism along with economic fundamentals falling in place, the RBI may look at testing the sustainability of the economic progress for one more quarter. Hence, the real estate sector will have to face the challenges in the short term but going forward we do expect the RBI to revisit its stance in the next review.”
