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22 October, 2018 07:44 IST
Expert views on RBI's sixth bi-monthly monetary policy review
Source: IRIS | 08 Feb, 2018, 10.11AM
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The Reserve Bank of India (RBI) in its sixth bi-monthly monetary policy statement for 2017-18 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 6.0 per cent.

''Consequently, the reverse repo rate under the LAF remains at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25 per cent,'' it added.

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

Rana Kapoor, MD & CEO, YES Bank:

''Monetary policy status quo is a reflection of RBI’s caution amidst recent global developments of higher crude oil prices and financial market gyrations. While RBI’s policy stance could remain unchanged in the near future, fiscal policy has taken the onus on curbing inflationary pressures via proactive management of the food economy and some rationalization in fuel taxes, if need be. Going forward, the rollout of the FY19 Union Budget will help consolidate benefits of past economic reforms and at the same time ensure that the sustainable growth dividend is underscored by equanimity in distribution.''

Chanda Kochhar, MD and CEO, ICICI Bank on RBI Credit Policy:
                                      
''The RBI has kept the rates unchanged but has raised inflation forecast in its monetary policy. It is heartening to note that the apex bank has acknowledged a positive outlook of growth due to a combination of factors such as investment, export recovery, asset resolution for large borrowers and increase in credit off take. The removal of the priority sector cap for MSME loans will help to channel additional resources to this sector. The flexibility given to non-residents to hedge currency and interest rates is a positive move that will deepen the Indian markets.''

Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI:

''The RBI decision to maintain status quo was on expected lines. Given the events in the past two-three days and the Budget a status quo was the ideal choice. The possible hardening of inflation due to fiscal slippages and turn in commodity cycle which may give cost push pressure on prices had a bearing on RBI decision to keep the rate constant.

Indian 10yr G-sec yield had been steadily declining from 2014 and was somewhat flat during the first half of 2017. But since the second half of 2017, yields have moved up by 114 basis points, in a period of about 7 months. During the same period the bond yield has also increased in five developed/ developing countries (China, Germany, UK, US and Euro Area) and it is within the range of 22-42 bps.

We believe that currently the 10-Yr G-sec yield in India are at elevated levels and not in sync with macro fundamentals. The reason why we call these exceptionally high is that the spread between the overnight repo rate and the 10 year G-Sec yield has increased to 169 basis points in Feb'18 and the spread between Overnight repo rate and SDLs yield has increased to 220 basis points. Such a large spread has been seen only a few times in the last decade and only during crisis.

Needless to say, such high yields push up government borrowing costs and are surely inimical to monetary policy transmissions, as this will put upward pressure on bank MCLR rates.''

Shanti Ekambaram, President, Consumer Banking, Kotak Mahindra Bank:

''In keeping with market expectations, there was no change in reference rates and the RBI's neutral stance continues. The policy highlighted risks to inflation trajectory due to stronger oil prices, lingering effects of pay commission and higher input costs. Inflation in the first half of 2018-19 is likely to be higher in the range of  5.1% to 5.6% and is likely to moderate in the second half. Growth is estimated to be higher at 7.2% for 2018-19, vs 6.6% estimated for 2017-18. Overall, the policy is supportive of growth with inflation trajectory expected to taper off over the second half providing a stable environment for growth. Further policy action will be based on inflation and growth trajectory over the next few months.''

R Subraimania Kumar, MD & CEO, Indian Overseas Bank:

''The policy repo rate under the Liquidity Adjustment Facility (LAF) unchanged at 6.0 per cent and continues with neutral stance as expected, on account of inflation outlook, increase in oil prices and subdued capacity utilization. GVA is projected at 6.6 per cent for 2017-18, the growth projection increased to 7.2% for 2018-19, and for H1 it is 7.3-7.4% for H2 7.1-7.2%. Increase in growth projection is on account of GST stabilization, revival in investment activity reflecting in credit off take, capital infusion to PSBs, resolution under IBC will create fresh investment and improve demand for credit, increase in export on account of global demand etc.

The regulator policy which includes - Moratorium period of 180 days for GST registered MSME, matching the methodology of determining benchmark rates by linking the Base Rate to the MCLR, Elimination of removal of Credit Caps on MSME (Services) under Priority Sector is positive and good for the MSME Sector & others. The maintenance of neutral stance implies that future rate cut depends on movement of data.''

Rajni Thakur, Economist, RBL Bank:

''MPC decision to hold key rates was on expected lines. It's prudent at this point to not disturb the growth inflation dynamics in response to potential risks. Continuing with neutral stance will help market anchor expectations.''

George Alexander Muthoot, MD, Muthoot Finance:

''As expected the central bank has maintained status-quo to sail through the current inflationary pressures and also to achieve the desired fiscal developments. The policy stance is in alignment with the industry expectations and current economic conditions. Several macro factors like international crude prices, rising commodity prices, increase in MSP prices in the current budget, global monetary policy and the fiscal pressure will dictate the policy stance going forward. India Inc has been patient with the regulator and awaiting the relief on cost of funds.''

Anil Kothuri, President & Head, Edelweiss Retail Finance:

''The RBI has announced that all loans to MSMEs will be considered as lending to the priority sector, regardless of the loan amount. This will incentivise banks and NBFCs to lend to this sector. It will also bring down the cost of loans for eligible borrowers.''

Arvind Chari, Head-Fixed Income & Alternatives, Quantum Advisors:

''As widely expected, the RBI kept Repo Rates unchanged and was understandably cautious in its outlook with the pressures building on inflation from oil prices, potential MSP increases and fiscal slippage. The RBI also very clearly articulated the reasons it feels why bond yields are trading where they are and virtually sent a signal to the government to desist from making public demands from them for OMOs to manage the rising government bond yields. The government move on MSP for kharif will determine the inflation outlook and rate trajectory and we expect RBI to remain on hold till then, as they seem to be deriving comfort from their inflation projection of 4.5% for H2 Fy 19.''

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