Industry’s views on RBI Monetary Policy

India Infoline News Service | Mumbai | October 04, 2017 17:39 IST

The central focus of the MPC on inflation, particularly on guarding against risks to achieving the medium term target of 4%, was clearly reiterated, said Naresh Takkar, MD and Group CEO, ICRA.

Reserve Bank of India logo
The monetary policy status quo reflects prudence and pragmatism amid global developments including structural adjustments in US along with firming up of the dollar and oil prices. 
 
I expect domestic disinflationary impulses like subdued capacity utilization, proactive food price management, and rationalization of fuel tax rates to have an offsetting effect.
 
Impact of Structural reforms like the GST and IBC will also boost capacity augmentation, providing room for 25-50 bps rate cut in the coming months.

Rana Kapoor, MD & CEO, YES BANK and Chairman, YES Global Institute

The Reserve Bank of India has kept the Repo Rate unchanged and policy stance at “Neutral” in the light of strengthening global economy, firming oil prices and rebound of inflation in domestic markets.

In the last few months, global economic activity has strengthened further and become broad-based across advanced and emerging economies. Higher consumption demand, better employment numbers, investment activities and firmer oil prices have led to improved economic conditions globally. However, geo political risks have increased which can cause volatility.

In the domestic markets, GVA slowed down considerably in Q1 due to lower traction in agriculture and allied activities, mining, services and a slowdown in private consumption. This is despite higher capital expenditure on part of the government. In Q2, trends have been better across manufacturing, transportation and services. Monsoons were 5% deficient overall but had a skew in distribution. Overall, the annual GVA estimates were pegged lower at 6.7% Vs 7.3% earlier pointing to a slower growth trajectory. Exports were better in August 2017 while imports rose sharply and capital inflows continued to show traction.

Inflation, however, has increased consecutively for the last two months due to rise in food inflation and tapering off of favourable base effect. Thus, inflation estimates for Q3 and Q4 range have been raised to 4.2 to 4.6%. The upside risks to inflation have been highlighted.

Interest rates, therefore, have been unchanged given  the discussed global and local factors. RBI has, thereby, continued to maintain the neutral stance and will monitor data for any further action on both fronts.

Shanti Ekambaram, President – Consumer Banking, Kotak Mahindra Bank.

Good policy is a process and not a state of being. At times, both the direction and destination are important. By maintaining status quo with a 5:1 verdict the MPC has clearly reiterated its wait and watch approach. There are too many moving pieces and it is important from their perspective to exercise caution before proceeding.

For India, a higher trajectory of Growth is a must. For this, we need smart and positive cues and from that perspective, this is an opportunity missed. We welcome the ‘pause’ but the positive cue should come sooner rather than later. India has a historic chance to take its growth trajectory higher. The single biggest goal for India is to attain a higher growth rate and on that path, positive cues are very important.

V S Parthasarathy, Group CFO, Group CIO, Mahindra & Mahindra.

As expected, the Monetary Policy Committee (MPC) decided to leave the repo rate unchanged in a split vote, and retain the neutral stance of monetary policy, whilst simultaneously reducing its forecast for economic growth. The central focus of the MPC on inflation, particularly on guarding against risks to achieving the medium term target of 4%, was clearly reiterated. Inflation is expected to climb further and surpass the MPC’s medium term target in the next few readings, which justifies the status quo and retention of the neutral stance in today’s policy review, despite the recent concerns regarding the pace of economic growth. In our view, the scope for further rate cuts in this year would be restricted to 25 bps, which would materialize only if the inflation trajectory significantly undershoots expectations.

The recent slowdown in volume growth is likely to prove transitory rather than structural in nature. While domestic consumption is likely to remain the chief driver of economic growth in FY2018, a sustainable upturn in investment activity remains elusive, given the challenges faced by the corporate sector and the SMEs, as well as the Central and the state governments. A targeted programme of fiscal measures, such as raising extra budgetary resources through tax free bonds to boost investment in roads, railways, metro rail and affordable housing, as well as policy intervention to address procedural concerns such as those being highlighted by exporters, may be more effective than a 25 bps rate cut.

Naresh Takkar, MD and Group CEO, ICRA Limited.

The Reserve Bank of India, on the expected line, kept both the policy rate as well as the stance of the monetary policy unchanged at the October policy review. This means the repo rate remains at 6% and the monetary stance, neutral. It has, however, cut the banks' statutory liquidity ratio (SLR) or the compulsory bond holding by 50 basis points to 19.5%. This is in line with the central bank's commitment to adhere to the Basel III framework on liquidity standard of which liquidity coverage ratio is an integral part.

The RBI has raised its inflation project in the second half of the fiscal year marginally - from 4%-4.5% to 4.2%-4.6%, factoring in the impact of the house rent allowance for central government employees. On the growth front, it has pared the real GVA growth for 2017-18 from 7.3% to 6.7%. Against the backdrop of its concerns on growth and rise in inflation, the status quo on the policy rate is par for the course. Its future action will be data driven.

Chandra Shekhar Ghosh, Founder, MD & CEO, Bandhan Bank.

On account of the RBI keeping rates unchanged the financial consumer's  best bet is to try to take advantage of the expected festive loan offers which the institutions may come up on account of competition among themselves. At the moment the average home loan interest rate is around 8.5 per cent with several banks having reduced their MCLR (marginal cost of funds based lending rate), and not many are expected to lower them any further in the immediate future.

However, notwithstanding the temptations one should ensure that due adoption of the One-Third Rule viz. no more than 1/3 of the Income should be used for paying the debts, expenses within 1/3 of the Income range, and ensuring that 1/3 of the Income is allocated towards investments.

Ranjeet Mudholkar, Vice Chairman and CEO, FPSB India on the Fourth Bi – Monthly Monetary Policy.

The fourth bimonthly RBI Policy announcement of FY2017-18 by RBI Governor Mr. Urjit Patel maintaining status quo and keeping the repo rates unchanged at 6% was an expected move but the real estate industry needs more. Although the rate was kept on hold to assess the impact of rising inflation, declining economic growth and the tumbling of rupee as against the dollar; a rate cut at this stage would have been an ideal Diwali Gift for home buyers who have been eagerly waiting for the rates to cut down.

The Government has already implemented stringent policies like RERA which is increasing the confidence of buyers. In the same vein, RBI too should have looked at the real estate sector with new optimism.

Ashwin Sheth - CMD, Sheth Corp.

Considering the current economic situation, it is disappointing that the RBI has chosen to maintain status quo on policy rates. The downside risks to growth has increased significantly over the last few quarters which coupled with sluggish credit off take has dampened activity across all the sectors. The policy is in line with the Central Bank's stance of achieving the medium term inflation target, but if continuous price pressures are going to limit the room for further rate cuts then the government will have to boost spending that may impact its budget deficit target.

A rate cut now would not only have provided much needed cushion to the economy, but would have also added thrust to the government initiatives on affordable housing. The real estate industry is already under immense pressure owing to rise in input costs which have put severe strain on profitability.

From a consumers perspective, the home loan rates are at their lowest and are unlikely to go down from here immediately. So, they must utilize this opportunity and book their homes ahead of the festive season to cash in on deals offered by developers.

Surendra Hiranandani, Chairman & MD, House of Hiranandani.
 

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