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RBI opts for neutral stance, tame action with repo rate cut
Contrary to market expectation of a status quo, RBI’s Monetary Policy Committee reduced its benchmark repo rate by 25 bps to 6.25% at its sixth bi-monthly policy review. Here’s how a few stakeholders reacted.
By
migrator
migrator
Chennai
RBI delivered a timely 25 basis points repo rate cut and softened its monetary stance to neutral, on the back of consistently low inflation and slowing global economic growth. RBI has been supplying liquidity through sustained Open Market Operations (OMOs) of government securities and with this rate cut, we should see a moderation in borrowing rates. Providing banks with increased flexibility on bulk deposits is a welcome move and will assist them in better managing their asset liability mismatches.
Zarin Daruwala, CEO, India, Standard Chartered Bank
The MPC now expects inflation at 2.8% in Q4FY19, 3.2-3.4% in H1FY20 and 3.9% in Q3FY20. Since inflation is expected to remain below the mid-point of MPC’s target range till Q3FY20, a rate cut as well as change in stance to ‘neutral’ was warranted. Although inflationary impact of the recently-announced fiscal stimulus, oil prices and rising costs of health and education pose concerns to the future inflation trajectory, the MPC is likely to act only when the impact of these factors starts showing in data.
Anagha Deodhar, Economist, ICICI Securities
Repo rate cut will feed into key benchmark rates and the new lending norms for retail borrowers that becomes operational from April 1. This will boost retail demand for both housing and auto loans. FPI limits for corporate bonds have been increased and External Borrowing conditionalities have been relaxed. This should serve to address to some extent the current funding distress faced by some of the NBFCs. The bond market has rallied in response. With more bond supply to come into the market in Q1 FY 2020, profit taking should dominate.
RK Gurumurthy, Head Treasury, Lakshmi Vilas Bank
The measures by RBI is a positive step. As the inflation is under control and below 3%, we expected the central bank to reduce the repo rate. A relief on the cost of funds is awaited eagerly by the SMEs as it helps them with reduced borrowing cost and offers much needed impetus, thereby improving their financial health. RBI’s current rate cut is indicating that in the next fiscal, if the inflation remains below 3% and oil prices remain stable, we expect rates to further reduce by 25 bps.
Umesh Revankar, MD & CEO, Shriram Transport Finance Ltd
The cut in rates will help to reduce the cost of capital, provided the pass-through by banks happen soon. On the NBFC front, NBFCs would be risk-weighted as per the ratings assigned. This should help better-rated NBFCs to reduce borrowing costs, given lower risk weights. RBI’s focus has changed from inflation primarily, to a combination of inflation and supporting growth, considering price stability has been achieved and inflation is below official targets. From an investment perspective, we continue to prefer the shorter to medium term part of the yield curve.
Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life Insurance
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