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The Reserve Bank of India kept interest rates on hold at 7.50% on Tuesday, waiting for more clarity on inflation after heavy rains raised uncertainty about food prices and seeking to grant banks more time to reflect its previous rate cuts.
Expert comments:
SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI:
"As expected the RBI maintained a status quo with a clear line of communication with regards to further monetary easing. Though the inflationary situation and government measures to combat supply side effects have started showing signs of improvement, the realisation of the same seems to be a medium-term affair. Further the key to a likely 25 bps cut would be dependent on lending rate revision by the bankers, provided both the above mentioned measures progresses well in the right direction."
R. SIVAKUMAR, HEAD OF FIXED INCOME, AXIS ASSET MANAGEMENT:
"Policy will remain data driven. For the rest of the year, one can expect 25-50 bps cut, but timing of the same is a tough call. Changes in bond markets are quite positive.
"The RBI now expects primary dealers to offer liquidity in semi-liquid government securities, which should improve the structure in bond markets. Changes on external commercial borrowings for corporates would also have a positive impact."
ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, NEW DELHI:
"I am a little disappointed as I was expecting a rate cut. But the way policy is conducted these days all the rhetorical language doesn't mean much and it's entirely data driven. It's quite possible that we get a nice retail inflation print and the RBI would move. One critical thing that RBI has said is to wait for the impact of its front-loaded rate cuts on bank lending rates. I think that will happen very soon and if data is supportive of a rate cut we might see one between policies."
RADHIKA RAO, ECONOMIST, DBS, SINGAPORE:
"Benchmark rates were left unchanged on concerns over near-term sticky inflation. Calls to lower the cash reserve ratio to aid policy transmission were meanwhile left unanswered, as we expected.
"While a lower CRR might have eased liquidity conditions without straining banks' interest margins, its uncertain whether that would have been enough to trigger cuts in base lending rate cuts or stoked credit growth. As far as policy transmission is impaired due to weak credit demand and concern over banks' asset quality, infusion of additional liquidity might not do the trick. Marginal impact on the base rate during the 2012-13 rate cutting cycle also does not set an encouraging precedent."
RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL, MUMBAI:
"A predictable policy with no surprise as such. Even if it has maintained status quo on monetary measures, it has announced a few growth-suppportive structural measures to facilitate long-term funding by banks to infrastructure to improve policy transmission. The RBI's year-end inflation forecast supports our earlier prediction that one more rate cut of 25 basis points is in the offing around June 2015."
KILLOL PANDYA, SENIOR FUND MANAGER, LIC NOMURA MF ASSET MANAGEMENT, MUMBAI
"It's a wait and watch policy while keeping the positive stance intact. The governor wants earlier 50 bps cuts to percolate to the economy. He is waiting for other stakeholders to do their part including government to remove supply side bottlenecks and banks that still need to do transmission of policy."
KUMAR RACHAPUDI, FIXED INCOME STRATEGIST, ANZ BANK, SINGAPORE:
"The RBI kept all rates on hold and said that future policy action will be contingent on transmission of lending rates into the real economy as well upcoming data. I still think we need more accommodative liquidity conditions in the next six months to improve transmission as well as see higher lending growth. We expect the OIS curve to steepen."
