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Comments on the outcome of RBI monetary policy

Published in Investment Thursday, 03 August 2017 14:43

Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services

 As expected the RBI cut repo rate by 25 bp. The central bank has kept the FY 2018 GVA growth rate unchanged at 7.3 %. We understand that the rate cut decision was not consensual. One member wanted a 50 bp cut in rate while another was in favour of a pause, while four members wanted a 25 bp cut. So finally we got 25 bp cut by a vote of 4 to 2. 
An important point to note is that the RBI has not changed the policy stance, which continues to be neutral. A shift to ‘accommodative' stance would have better from the sentiments perspective. To that extend, the decision is disappointing. It is important to note that India has the second highest real interest rate in Asia presently. This is detrimental to credit expansion and economic growth.
The RBI governor expressed concern that CPI inflation might inch up to 4 % by Q4. Perhaps they might cut again when CPI inflation undershoots their estimates, which has been the case in the recent past.
 George Alexander Muthoot, MD - Muthoot Finance Limited
 “The 25 bps cut by the RBI is in alignment with the industry expectations and current economic conditions. With acceptable inflation levels, the focus is clearly towards driving the growth.
We expect the rate cut will support the economy’s investment demand and uptick in credit environment. India Inc has been patient equally with the regulator and the relief on the cost of funds would help them to improve financial health and plan for the next leg of growth.
So in summation the interest rate scenario should change for good in FY18.”
Shankar Raman, CIO – Third Party Products, Centrum Wealth Management

 'RBI’s rate cut  was well priced in by markets given the significant undershoot on inflation in the last 3 months – therefore, no surprises there. The cheer however was diluted by the cautious undertone of the policy statement – with the RBI guiding inflation higher here-on which markets interpreted as ‘no room for further rate cuts’ .  Some sections of the market had expected a 50 bp cut today – this explains the minor pull back in bond prices post the policy. In summary, the RBI will likely stay data dependent as far as rate actions are concerned – for now, bond yields are likely to trade in a flat range and oscillate in response to inflation prints.'

Shashidhar Pai, MD, Citrus Ventures 

"Retail inflation is at sub 2% levels and is expected to remain around 3% over next 2 quarters. Credit offtake and factory outputs are at historical lows. Job growth is not happening and economy is growing at slowest phase. With steady FDI and FPI inflows, USD expected to remain in Rs. 65-66  levels. 3-4 rate hikes by Fed is already factored in. Looking all these we expect a significant rate reduction, say 50 basis points, to stimulate the growth momentum, to lay foundation for some serious employment generation. For Real estate industry that is on a declining trajectory over past few years due to weak demand and ever increasing costs of major inputs like steel, cement, tiles etc, a significant reduction in interest rate can act as a booster dose by making affordable housing, looking promising with PMAY scheme, more attractive."

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