India's central bank, the Reserve Bank of India (RBI) in its mid quarter monetary policy review on Tuesday has kept CRR, repo and reverse repo rate unchanged. The market was expecting 25 bps rate cut in CRR to improve liquidity in the banking system.
Lets take a look as to what experts have to say on the RBI's leaving the key rates unchanged:
Moses Harding, head - ALCO, economic & market research, Indusind Bank:
RBI firmly stayed with stated earlier stance and kept rates unchanged but with very positive guidance of being in preparedness for shift into growth supportive monetary stance. If inflation print continues to trend down into the next couple of months, there is high probability of rate action in January 2013. When the system is holding above 5% of NDTL as excess SLR investments (net of drawdown from LAF/Repo counter), CRR cut will not be seen as monetary measure to support growth.
Over all, RBI did not opt to deliver pleasant surprise to the market through rate cut this time, and seen as disappointment to most stake holders including the Government. However, strong signals have emerged for rate reversal cycle starting from January 2013; risk factor to this expectation will be from elevated headline inflation. There is no guarantee of rate cut in January but the expectation in January-March 2013 is retained. The disappointment of the market reflected in post-policy price action driving the NIFTY down below 5840 and 10Y Bond yield into 8.15-8.18%. The bullish undertone and resultant rally is seen to be delayed but not denied.
Motilal Oswal, CMD, Motilal Oswal Financial Services:
The policy status is perplexing against the current stance of RBI that accords highest priority to liquidity and slew of measures initiated by the government calling for matching actions from RBI.
An acknowledgement of the changed growth inflation mix is a precursor to a rate cut. Hence we expect a 50bp cut in policy rate in Jan-13 and at least another 50bp in remaining CY13. If the growth, inflation and government policies momentum retains its current trajectory, a more accommodative stance from RBI is a certainty. However, RBI can still give meaning to its current liquidity easing stance if open market operations (OMO) is continued with infusion of further Rs 400 billion of liquidity in the system during the busy season.
Lakshmi Iyer, senior vice president and head, fixed income, Kotak Mutual Fund:
RBI has refrained from changes to rates this time around. Although core Inflation has been keeping low at 5-5.6% for some time, the IIP uptick in October 2012 of 8.2% may show some incipient signs of pick-up. Although WPI Inflation has been on a downward trend, it is still remains a tad higher than RBI’s comfort zone which may be the reason for status quo. But RBI acknowledges that growth remains significantly below its recent trend along with the fact that WPI inflation also has been moderating at a pace faster than anticipated. Easing of commodity prices such as crude would also help lower inflationary pressures unless there is some surprise on the currency front. The current status quo only strengthens our view that we would see repo rate easing in the next few quarters.
Gautam Trivedi, MD & Head of Equities, Religare Capital Markets:
We are not surprised at all with the lack of a move by the RBI on both the CRR and the Repo rate. We maintain our view that the RBI will cut the repo rate in the Jan-Mar Quarter. RBI's Commentary is starting to get more dovish and supportive of growth. Also it guides to lower inflation in FY14.
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