Reaction of industry leaders RBI's monetary policy

RBI Monetary Policy Committee (MPC), in its first bi-monthly monetary policy review for FY20 has decided to cut the repo rate by 25bps to 6% and kept stance unchanged at neutral.

Apr 04, 2019 08:04 IST India Infoline News Service

Reserve Bank of India
In a widely expected move, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC), in its first bi-monthly monetary policy review for FY20 has decided to cut the repo rate by 25bps to 6% and kept stance unchanged at neutral. Notably, the RBI has cut the repo rate for the second time in 2019.

B Prasanna, Head, Global Markets group, ICICI Bank, “The MPC decision taken today to cut the repo rate by 25 bps while keeping the stance neutral is a prudent and laudable one. It has successfully managed to keep its stance flexible to react to the need to support growth even as it keeps a close watch on the upside concerns on inflation from rising oil and food prices going ahead. However, the sharp downward revisions in the CPI trajectory for FY2020 and expectations of benign inflation till FY2021 as well as the downward revisions in growth forecasts for FY2020 do give the MPC more room to support growth if required. If incoming data on inflation and growth were to further surprise on the downside we could see the MPC cutting rates once more going ahead. It was surprising though that the MPC chose not to be more proactive on liquidity management while still deliberating on the need for keeping liquidity neutral in order to aid transmission. Further dispensations on FALLCR, while not aiding systemic liquidity will surely ease the burden on banks to raise fresh resources to manage LCR requirements. On the developmental front, the proposal to commence the process of implementation of international settlement of Government securities by ICSD is a positive step towards internationalization of our Gsec market.”

Kunal Shah, CFA, Fund Manager - Debt, Kotak Mahindra Life Insurance Co. Limited., “MPC members has decided to cut repo rate by 25bps to 6% (4-2) (as expected by market participants) as inflation and growth prints were lower than earlier expectations. MPC maintained the stance as neutral (5-1) with one-member voting for change in stance to accommodative.
 
Bond markets were hoping for some signal of further easing post todays cut however the statement and the commentary did not hint on the same, also almost unanimous vote on maintaining stance as neutral affected the sentiment. Bond yields have moved up by 10bps after the policy and may remain under some pressure for some time.
 
MPC sees average inflation for FY 2020 around 3.5% which is below the medium-term target of 4% and MPC also sees FY 2020 GDP growth of 7.2% (consensus: 7%), with lower GDP growth MPC would possible ease more in this fiscal year. If monsoon performance is not bad and food prices remain low bond markets will start pricing in more easing and yields will move lower. One of the important for markets will be election outcome as it will have bearing on fiscal stance. In near term 10y will trade in the range of 7.20-7.40%.”

Shanti Ekambaram, President – Consumer Banking, Kotak Mahindra Bank Ltd, “Against the benign inflation, slower growth trajectory, and in line with market expectations, the RBI cut repo rate by 25 bps to 6 per cent. Slowing global growth, including in some emerging markets, lower rates and dovish stance of some of the advanced economies, is likely to impact global growth and interest rates.
 
Domestic economy growth estimates have been revised downwards marginally to 7.2% and inflation trajectory has also been revised downwards. Thus, by March 2020 inflation is estimated to be about 3.9%, which is below the RBI benchmark of 4%. Growth across manufacturing, services & agriculture has moderated. Food inflation continues its benign trend. Consequently, interest rates are likely to be stable with a downward bias.
 
Overall, the RBI has committed to maintain adequate liquidity in the banking system and will watch the emerging fiscal situation post elections, monsoons and risks for global trends to determine future policy action.”

Sunil Sharma, Chief Investment Officer, Sanctum Wealth Management, “Even as inflation projections have been revised downwards significantly and some of the risks pointed out in the last resolution have been mitigated, several uncertainties still cloud the inflation outlook.
 
The domestic and global demand-supply balance of key food items is expected to remain favourable, and the short-term outlook for food inflation remains benign. However, early reports suggest some probability of El Niño effects in 2019 which could lead to upwards pressure on prices. The outlook on crude continues to weigh as well, as Brent prices are threatening to cross the $70 level. Therefore, the RBI chose to maintain a neutral stance for now. It remains to be seen if the benefits of rate cuts are passed on to the end consumers in the form of lower cost of capital.”

Rajiv Sabharwal, MD and CEO, Tata Capital, “In the first monetary policy of FY19-20, RBI as expected delivered a 25bps rate cut in the Repo Rate. With the RBI’s recent long-term forex swap tool and OMO’s infusing liquidity, credit growth will continue to gain momentum. Further, India’s bond market will attract foreign inflows and boost market sentiments. With Inflation under control and signs of a stronger Rupee supports RBI’s neutral stance, which will fuel growth in the economy.  The RBI may pause and closely watch for global growth cues and impact of the monsoon before any further intervention.”
 
Gaurav Gupta, CEO, Adani Capital, “25bps rate cut is in line with expectations. Inflation is in control. We could see further rate cuts in CY2019. However, crude prices and monsoons could change the stance”

Surendra Hiranandani, Founder & Director, House of Hiranandani, “The reduction in rate cut is a welcome move which will give a boost to the economy through higher consumption and investments. It is encouraging that the overall focus is on supporting growth and infusing liquidity in the system. Hopefully, consecutive rate cuts will lead to lower lending rates which augurs well for the real estate sector as it will bring back fence sitters in the market. It is now up to the banks to pass on these cuts and ensure that the common man reaps the benefit of this move.”

Amit Saxena, MD & CEO, Unimoni India,This rate cut is in line with expectations of economists as well as the industry. A consecutive rate cut by RBI while keeping the policy stance neutral is a positive development for the lending industry as it would certainly ease out liquidity concerns and improve an easy access to credit by corporate as well as retail consumers. This in turn will boost end consumer demand which is great news for retail NBFCs. The recent spate of cash injections by RBI into the system have helped ease concerns, which had clouded the market sentiment in Q3 last year.”
 
Niranjan Hiranandani, National President - NAREDCO and Sr VP-Assocham, “India Inc. got positive news as regards a rate cut in the first monetary policy of the current fiscal, on 04 April 2019. The need for flexibility with the evolving situation in India, given that both, inflation and growth have slowed, was reflected in the RBI’s move. Economic growth weakened to 6.6 per cent at end-2018, the slowest in five quarters; while annual retail inflation was low, at 2.57 per cent in February following five months of deflation in food prices.
 
The sentiment in India Inc. is that from the Monetary Policy Committee (MPC) of Reserve Bank of India (RBI) having granted the 25 basis points (bps) rate cut in today’s policy review would be followed by another 25 bps in the near future. The Indian economy needs liquidity as fuel to power the growth engine. The RBI move is expected to lift industry sentiments, as also provide relief to various stakeholders like corporates as also in real estate, home buyers. We expect that banks further pass down the benefit for the rate cut to the home buyers which shall further trigger the home buying in to the actual sales.”
 
DrSunil Kumar Sinha, Principal Economist, India Ratings and Research (Fitch Group) said, “RBI’s rate cut by 25bp in its First Bi-monthly Monetary Policy Statement for 2019-20 is on expected lines. However, as against our expectation of policy stance moving to accommodative, RBI kept it unchanged at neutral despite lowering its CPI inflation forecast downwards to 2.4 % in Q4:2018-19, 2.9-3.0% in H1:2019-20 and 3.5-3.8% in H2:2019-20 and FY20 GDP growth forecast to 7.2% from 7.4%. India Ratings believe this simply means RBI wants to keep its options open with respect to moving the policy rate in either direction should such a situation arises. Despite comfortable inflation and inflationary expectations some of the risks that are looming large on this front are (i) stickiness in the core and core-core inflation (ii) abrupt reversal in vegetable prices especially during the summer month, (iii) uncertainty about the sustainability of the softening of inflation in the fuel group items especially oil where outlook continues to be hazy and (iv) probability of El Niño effects on the monsoon.  One additional risk could be the fiscal policy stance of the new government.
 
India Ratings and Research believes with this rate cut RBI perhaps has used up the window available for the rate cut as of now and further rate cut would largely depend on whether the aforesaid risk to inflation materializes or not. “
 
Khushru Jijina, MD, Piramal Capital and Housing Finance, “It is necessary to resurrect India’s consumer demand and economic growth before a synchronous downturn in advanced economies heighten market volatility. Today’s rate cut and moderation in liquidity coverage ratio coupled with recent instances of liquidity injections indicate that RBI is cognizant of these risks. These measures would certainly help ease liquidity and improve access to cheaper credit by India Inc as well as retail consumers. The focus to align the Indian housing finance securitisation market as well as the secondary market for corporate loans with international best practices as announced today will essentially deepen these markets and ensure better price discovery. We look forward to the detailed notes on RBI’s decision to allow Non Deposit taking NBFCs to apply for Authorised Dealer licenses which is expected to expand the forex market.”
 
Farshid Cooper, Managing Director, Spenta Corporation, “RBI decreasing the repo rate by 25 basis points is a boon to the sector. This might quicken the pace on both private consumption and private capital expenditure. Furthermore, it is imperative for banks to reduce the lending rates and ensure that the home loan borrowers reap the benefits of this move. The rate reduction will also provide the much-needed stimulus to build upon the various initiatives announced by the Government about reviving the demand in the realty sector in an affordable manner.”
Prof. Rudra Sensarma, Professor of Economic, IIM Kozhikode, RBI's repo rate cut was almost a fait accompli with the inflation outlook continuing to be benign for some time and a few leading indicators signalling a growth slowdown. Since last month the RBI had started creating conditions for effective transmission of a rate cut by injecting liquidity in the banking system by way of dollar swaps. Even before that the US Fed's U-turn from hawkish to dovish stance in late January had helped to create scope for a back to back repo rate cut by the RBI. The reduced repo rate will enable the rupee to depreciate and help export sectors and job growth. As for the inflation target, what is often forgotten is that the original notification introducing the inflation targeting regime in 2016 clearly mentioned that the target is to be pursued over the course of the business cycle. It means that inflation need not be maintained at 4% every month but should be within the permissible range allowing the target to be met on an average in the medium to long run. Under governor Das the RBI seems to be returning to this original mandate which allows scope for supporting growth in the short term.”

Ranjeet Mishra, Chief Credit Officer ART Housing Finance, "We welcome RBI's accomoditive stance to accelerate the economic growth and lowering the repo-rate by 25 basis points in low inflation and low growth scenario. Also, RBI’s steps to set up a securitization committee and assess measures to develop the housing finance securitization market is a positive impetus for the sector and will help on the liquidity front."

Ravindra Sudhalkar, ED & CEO, Reliance Home Finance, “The Reserve Bank of India’s decision to cut interest rates, second time in a row, is icing on the cake for the interest-rate sensitive sector. After government’s proactive steps to boost real estate markets by relaxing GST rates and offering tax sops in the interim budget, the rate cut will provide much-needed impetus to real estate sector, which is reeling under liquidity pressures. Setting up the committee for assessing housing finance securitisation market is a welcome move which will help further easing liquidity in the system. Overall, today’s cut in rates will positively impact home loan interest rates by reducing EMIs, and in turn provide stimulus to demand-side in real estate. We also expect improvement in flow of bank credit to NBFCs.” 

Ranjan Chakravarty, Product Strategy, Metropolitan Stock Exchange, "This was another status quo policy decision.  Sometimes when the MPC acts to meet consensus, as in this case, it shows signs of excessive caution, which can very easily be interpreted by the market as RBI's continued lack of confidence in the underlying drivers of the economy.  There was no cause for such caution since the economy is doing just fine. Hence it is no surprise that the market immediately reacted sharply negatively. Clearly, a 25 bp easing, as was the consensus, was not enough. The market needed a bold slashing of at least 50 if not 75 basis points and the RBI did not go there. The implication is, is inflation in the offing? We think not. No reason for such an ultraconservative view. Urging RBI to be bold and take strong measures to slash rates and stimulate demand since there is no real danger from the cost side. Though no panic will ensue, neither Equity nor Bond markets will rejoice at the moment.", says Dr. Ranjan Chakravarty- Product Strategy, MSE. 

R. Sivakumar, Head - Fixed income, Axis Mutual Fund, “The RBI in its first monetary policy for the year has echoed the need to stimulate domestic growth. Given the weak global outlook, the RBI has proactively added durable liquidity to the system in an attempt to facilitate growth and latent demand. The markets had anticipated guidance on the liquidity flow from the RBI. The governor remained silent on this front. Last year, OMOs played a key role in guiding rates across the curve. Further, the increased carve out from SLR to FALLCR is likely to dampen demand for G-Secs from banks. This led to a rise in bond yields. Over the 2 monetary policies since the start of the year, the RBI has cut rates twice. This has effectively anchored the 10 year at 7.30 levels. While long bonds may offer tactical opportunities, we prefer short tenor bonds for our core portfolio. High policy and repo rates have created a large wedge between them and the CPI inflation. We believe that this is a short term phenomenon which should correct over the next few quarters. We see the inflation wedge as a short term opportunity to add duration selectively to our portfolios given the current risk reward on the medium to long end of this curve. We also re-emphasize our view of credits. Given that the attention of market participants has been skewed towards the AAA segment in the short space, credits in the same space (1-3 years) offer significant opportunities.
 
We have selectively added duration in our portfolios through long bonds. We have also added select 1-3 year AA credits across our credit portfolios in line with our credit view. As always, our prudent investment norms and strong risk mitigation framework form the bedrock of all our credit evaluation. The corporate bond spread in the short to medium tenor space also offers material opportunities for buy and hold investors and hence believe that investors should consider deploying funds in roll down strategies.”

“With inflation and inflationary expectations coming down and moderating growth, there is a need to increase the thrust to revive the consumption demand and drive the investment momentum. Broad estimates indicate that if only the pace of growth in the government and private sector consumption in Q3 FY19 would have been near the levels as witnessed in Q2 FY19, GDP would have inched closer to 8% in place of the 6.6% growth recorded. Added to the domestic issues are wider concerns of loss in momentum of global economic activity and heightened downside risk to global growth. With concerted measures taken globally to support growth in various countries, it would be prudent to stay ahead of the curve for the policy rate cut. However, the change in stance will depend how the inflation pans out after the monsoon. There are certain upside risks to inflation which emerges from correction in the inflation of some of the food articles, uncertainty over monsoon owing to partial El Nino impact and election related spending.”, says Dr. Arun Singh.

Vijay Mansukhani, MD, Mirc Electronics Ltd., “Reducing interest rate is much need for the overall growth of the economy. Stable currency, crude oil prices coupled with reducing interest rate regime are going to drive Indian economy. The reduced interest rates will also drive consumption lead economic growth. As a consumer durables brand we are going to be benefited because of reduced interest rate regime as this would put more surplus cash in the hands of consumers.”
 
Vinod Ramnani, Chairman, Opto Circuits India Ltd., “RBI rate cut is welcome move and is on the expected lines. Having said that, reducing interest rates will make many projects viable. This will encourage private spending across Industries. Private spending by corporates coupled with Government spending and consumption will drive the economy. This rate cut would be effective only if Banks pass on to its customers.”

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