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19 December, 2018 19:23 IST
Expert views on RBI's fifth bi-monthly monetary policy review
Source: IRIS | 06 Dec, 2018, 10.06AM
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The Reserve Bank of India (RBI) in its fifth bi-monthly monetary policy statement for 2018-19 decided to keep key interest rates unchanged.

The RBI said, ''On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5 per cent.''

''Consequently, the reverse repo rate under the LAF remains at 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent,'' it added.

Myiris has collated reactions of experts post RBI policy. The same are follows:

B Prasanna, Head- Global Markets Group, ICICI Bank:

''The policy today retained the repo rate at 6.50%. The major highlights of the policy that are worth noting are the sharp downward revision to the inflation forecasts, the post-policy statement by the Governor that emphasized the scope of change in the policy stance if upside risks to inflation do not materialize and the statement by the deputy Governor alluding to continuation of Open Market Operation (OMO) purchases to manage durable liquidity.

Going forward, we believe the Monetary Policy Committee (MPC) is likely to remain on a prolonged pause. This also gives us confidence that the scope for a cut in rates becomes possible if realized inflation in the next few months were to confirm or undershoot the revised path forecasted by the MPC. The roadmap for a gradual reduction in Statutory Liquidity Ratio will help to release resources for credit and will become meaningful in an environment of OMO purchases.''

Rajnish Kumar, Chairman, SBI:

''The RBI decision to keep rates on hold was more in consonance with market expectations but the policy guidance was a pleasant and pragmatic surprise. The significant downward revision in inflation projections and assurance of continued durable liquidity was most reassuring to market participants in terms of a stable and predictable interest rate structure. On the development front, permitting non-residents to hedge their rupee interest risk is a welcome move providing the much-needed fillip to the Rupee Interest Rate Derivative market. Allowing non-residents to participate in the OIS market for non-hedging purpose will also add depth to the market in terms of broad based participation. The LCR alignment to Basel III was already known but now the RBI has provided a clear and time bound glide path for transition to the new regime.''

R. K. Gurumurthy - Head Treasury, Lakshmi Vilas Bank:

''The surprise element was that SLR has been cut in a calibrated manner prospectively  beginning January 2019, by 150 points, to align with LCR. The move may release and add to  lendable liquidity locked in Government Securities.  With inflation expectations lowered, this should not impact bond sentiment in the short run. Bonds have rallied on the back of announcement that Open Market Operations will continue, and future policy and rate stance will depend on incoming data-implying a longer pause is the way forward. Inflation expectations have been sharply lowered for H2 FY 2019, which is the key driver on the day for bonds outperforming both currencies and equities. The focus in this policy has been on addressing the issues around structural and systemic liquidity. Growth forecast has been retained, possibly due to the belief that output gap has closed and GDP growth should remain robust.  The policy has allowed NRIs to hedge their interest rate risks using onshore hedging products-this will deepen and enhance liquidity for popular products like the OIS (overnight index swaps). Overall, the policy could be a watershed event if a shift from tightening to neutral/easing stance were to take shape in the future.''

Naresh Takkar, MD & Group CEO, ICRA:

''The status quo on the policy rate and monetary policy stance is in line with our expectation, necessitated by the continuing uncertainty related to major components of the inflation outlook. At this stage, there does appear to be a significant chance of a change in the stance back to neutral in the February 2019 policy review.

The announcement of continued open market operations to inject liquidity would complement the impact of the recent decline in the US 10-year yield and some stabilisation in crude oil prices at a moderate level. We now expect the 10-year G-sec yield to trade in a band of 7.3-7.7% in the remainder of this quarter. The key risk that could push up G-sec yields would be an upward revision in the Government of India's borrowing calendar for Q4 FY2019.''

Rajni Thakur, Economist, RBL Bank:

''MPC's decision to hold the policy rates steady was along the expected lines. However, the commentary focussed on pick up in industrial activities and capacity utilisation should allay some of the market fears of low growth momentum for next few quarters. The Central Bank has kept its options for further rate actions open with downward revision of inflation projections and also retaining its stance of 'calibrated tightening'.''

Raj Mehta, Fund Manager, PPFAS Mutual Fund:

''As per street expectations, the RBI has kept the repo rate unchanged. Some analysts on the street were expecting the RBI to give a dovish commentary and change the stance from neutral to dovish. However, since RBI had changed the stance in the last meeting itself, the probability of RBI maintaining its stance 'calibrated tightening' were higher especially with elections around the corner. Even though RBI has maintained their stance, they have lowered their inflation expectations going ahead with crude prices falling and the soft CPI inflation numbers which we saw last month. I would not be surprised if we get a repo rate cut in the 1st half of 2019. On the growth side, RBI has maintained the GDP growth at 7.40% but has cited trade talks and slowing US GDP to be potential dampeners going ahead.''

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