The Reserve Bank of India (RBI) kept its key policy repo rate unchanged at 8% on Tuesday, as widely expected, while expressing concern about risks to its target to bring consumer inflation down to 6% by January 2016.
The Reserve Bank of India also kept both the statutory liquidity ratio (SLR) and the cash reserve ratio (CRR) unchanged.
Expert comments:
RADHIKA RAO, ECONOMIST, DBS, SINGAPORE
"The central bank's tone was neutral, expecting inflation to stick to the disinflationary path in the near-term but flagging upside risks to the FY16 CPI trajectory. The base-effects driven swings in the inflation reading over the next six months will also keep the central bank wary of over-reacting to single data points. We maintain that rate cuts are not imminent and the benchmark rate will plateau at 8% till end-FY15.
The cutback on export credit refinance facility is another step towards a shift away from sector-specific liquidity allocations. In addition, the shift towards T+2 settlements for foreign investors is positive, helps widen the investor base and overcomes varying global trading hours."
SOUMYAJIT NIYOGI, ANALYST, INTEREST RATE & EQUITY, SBI DFHI PD
"We see this as a very balanced and nuanced policy statement that is very future-oriented. The key takeway is that the central bank is now focussed on achieving the 6% inflation target (for Jan 2016) rather than the 8% target. The staggered cut in HTM will mean that it will gradually become aligned with the SLR level so that banks can manoeuvre their portfolios without any disruption in the bond market. Another heartening thing is that we are on our way to achieving the FRBM target."
SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI
"The tone was well in sync with the central bank's determination towards inflation anchoring in the medium term, while acknowledging the stability across sectors would remain crucial. The series of initiatives from government's end though would weigh on forthcoming policy stances, a clear guidance on bringing down the SLR holdings under HTM (held-to-maturity) somehow indicates the approach of the central bank is more focused towards credit supportive growth strategy rather than a rate supportive approach. In the light of today's RBI guidance, we expect the rate cheer from RBI during the current calendar year seems unlikely with more thrust on liquidity supportive growth strategy."
SANDEEP NANDA, CHIEF INVESTMENT OFFICER, BHARTI AXA LIFE INSURANCE, MUMBAI
"The policy is more or less in line with estimates. I think RBI's guidance implies some caution. The statement seems more hawkish as RBI's model does not expect inflation to fall rapidly in FY16. Food inflation will take time to come off as a lot of it is in the hands of various states. However, falling oil and vegetable prices mean the door is not completely shut on rate cuts."
KUMAR RACHAPUDI, SENIOR RATES STRATEGIST, ANZ, SINGAPORE
"The overall stance of the RBI remains cautious even though it mentioned that the risks to its inflation objective have somewhat decreased from pre-policy. From a markets perspective, the impact of reduction in HTM assets is marginally negative for bonds".
KILLOL PANDYA, SENIOR FUND MANAGER - DEBT, LIC NOMURA ASSET MANAGEMENT, MUMBAI
"The policy is totally in line with expectations. There have been no surprises at all. RBI Governor Raghuram Rajan remains worried about inflation. The governor worries that inflation would not remain at a lower level in the long run. I think RBI has given a guidance of wait-and-watch policy on interest rates. He has asked the government to reduce bottlenecks to ease food inflation which fall under fiscal space than monetary."
R SIVAKUMAR, HEAD OF FIXED INCOME, AXIS MUTUAL FUND, MUMBAI
"Our expectation is that even after the base effect is accounted for, inflation by January 2015 will be substantially lower than 8%.
RBI is going to roll the goalpost one year forward, and if the CPI inflation moves towards 7% then we expect a gradual pace of rate cuts, and if inflation moves closer to their target 6% then we can probably expect a more aggressive rate of pace cuts.
The reaction on HTM cuts was already priced into the market and it is very muted. We continue to believe cuts in HTM and SLR requirements over a period of time will be driven by RBI's goals to have banks meet their Basel-III liquidity norms."
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