RBI Monetary Policy: Industry Outlook

RBI decreasing the repo rate is a boon to the sector Farshid Cooper, Managing Director, Spenta Corporation

www.newsbarons.comRBI decreasing the repo rate by 25 basis points is a boon to the sector. This might quicken the pace on both private consumption and private capital expenditure. Furthermore, it is imperative for banks to reduce the lending rates and ensure that the home loan borrowers reap the benefits of this move. The rate reduction will also provide the much-needed stimulus to build upon the various initiatives announced by the Government about reviving the demand in the realty sector in an affordable manner.

Rate cut will give boost economy through higher consumption and investments: Surendra Hiranandani, House of Hiranandani

The reduction in rate cut is a welcome move which will give a boost to the economy through higher consumption and investments. It is encouraging that the overall focus is on supporting growth and infusing liquidity in the system. Hopefully, consecutive rate cuts will lead to lower lending rates which augurs well for the real estate sector as it will bring back fence sitters in the market. It is now up to the banks to pass on these cuts and ensure that the common man reaps the benefit of this move.

The reduced repo rate will enable the rupee to depreciate and help export sectors and job growth: Professor Rudra Sensama, IIM Kozhikode

RBI’s repo rate cut was almost a fait accompli with the inflation outlook continuing to be benign for some time and a few leading indicators signalling a growth slowdown. Since last month the RBI had started creating conditions for effective transmission of a rate cut by injecting liquidity in the banking system by way of dollar swaps. Even before that the US Fed’s U-turn from hawkish to dovish stance in late January had helped to create scope for a back to back repo rate cut by the RBI.

The reduced repo rate will enable the rupee to depreciate and help export sectors and job growth. As for the inflation target, what is often forgotten is that the original notification introducing the inflation targeting regime in 2016 clearly mentioned that the target is to be pursued over the course of the business cycle. It means that inflation need not be maintained at 4% every month but should be within the permissible range allowing the target to be met on an average in the medium to long run. Under governor Das the RBI seems to be returning to this original mandate which allows scope for supporting growth in the short term.

Room for another cut, but not back-to-back: Abheek Barua, HDFC Bank.

  • In line with our expectations, the RBI cut the repo rate by 25 bps to 6.0%
  • The Monetary Policy Committee (MPC) voted 4:2 in favour of the 25 bps rate cut
  • The stance of the policy was kept unchanged as neutral
  • The RBI revised down its projections for both growth and inflation
  • In order to ease liquidity pressures, the RBI announced an increase in the FALLCR

The MPC highlighted that “the output gap remains negative and the domestic economy is facing headwinds, especially on the global front. The need is to strengthen domestic growth impulses by spurring private investment which has remained sluggish”. This suggests that there could be more rate cuts in the offing. Current RBI projections on growth and inflation also suggest that there is room for further easing.

However, the MPC is likely to wait for further clarity on monsoon and its impact on food prices, the fiscal math of the new government, and the evolving dynamics in the global crude market before making its next move. Therefore, we expect the RBI to stay on hold in its June meeting. A rate cut in August would hinge on how the above mentioned risks unfold. For the bond market, unless there is a liquidity surplus in the system, yields could continue to edge up (September estimate of 7.75% for the 10-year benchmark yield).