INSUBCONTINENT EXCLUSIVE:
The RBI said it was concerned about inflation in the near termBengaluru: The Reserve Bank of India (RBI) kept its key lending rate on hold
in a shock decision on Thursday, despite a worrying slowdown in the country that prompted the central bank to sharply reduce its economic
growth forecast to 5 per cent for the year through March.The central bank acknowledged that it does have room to cut rates further, but said
it was concerned about inflation in the near term."The MPC recognises that there is monetary policy space for future action
However, given the evolving growth-inflation dynamics, the MPC felt it appropriate to take a pause at this juncture," the committee said in
(Read full MPC statement here)COMMENTARYMadhavi Arora, lead economist, FX and rates, Edelweiss Securities, Mumbai:"We think that this easing
In a situation when growth slowdown looks more entrenched and underlying core inflation has slumped to sub-3.5 per cent amid widening output
gap, the monetary accommodation still has further steam for another 50 bps in this rate-cut cycle
That said, we reckon with the RBI that a coordinated policy response both by the government and the RBI is required in the current slowdown
cycle.""However, we do realize the policy paradigm has to move beyond rate cuts and conventional fiscal easing
The policymaker should continue to address the problem of credit and business confidence and overall financial stability to break the
selective liquidity trap for optimization of the rate transmission."Sunil Rohokale, managing director and CEO, ASK Group, Mumbai:"The RBI
should focus on earlier rate-cut transmission aggressively
The wider credit flow from banks, HFCs and NBFCs would be crucial to GDP growth of 5-6 per cent in the next few quarters.""The most
distressed sectors like real estate and MSME credit flow is completely frozen and the crisis of confidence is grave.""We cannot dream to
have GDP growth of 6 per cent-plus without real estate and MSME sector recovery, which are significant contributors to economy and job
creation."Rajani Sinha, chief economist, Knight Frank, Mumbai:"Given the growth concerns, we still feel there are chances of one more rate
cut by April 2020.""The RBI's growth projection could still be marginally revised downwards going forward, especially for first-half of
Growth has slowed on all quarters - investment, consumption and exports
Hence, the revival is likely to be slow and painful.""Given the poor aggregate demand scenario, I do not see overall inflation posing a
serious threat.""There is a need for further fiscal stimulus
In fact, a direct measure like income tax cut will provide immediate boost to consumption
Monetary policy decision could be put on hold if the government comes up with strong fiscal stimulus, as the central bank would be wary of
the inflationary impact of the same."Nikhil Gupta, chief economist, Motilal Oswal Financial Services, Mumbai:"Overall, today's status quo
increases the credibility of RBI's inflation mandate.""We had always believed that today's cut would be the last rate cut in this cycle
We continue to maintain that there will be no more rate cuts now unless inflation falls back towards 4 per cent."Sudhakar Shanbhag, chief
investment officer, Kotak Mahindra Life Insurance Company Limited, Mumbai:"Against an almost consensus market expectation of a rate-cut
based on the slowdown seen in growth, the MPC seems to have chosen to focus on its mandate of inflation management and have recognised that
the latest CPI print and expected prints over next few months would be higher than their targeted level and also a belief that past
rate-cuts will help to support growth with focus on transmission."Upasna Bhardwaj, senior economist, Kotak Mahindra Bank, Mumbai:"It is a
surprise, but having said that I think the RBI has preferred to stay cautious because inflation numbers in the near-term seem to be ahead of
its medium target.""We continue to see room for 50 bps rate-cut ahead, but we'll have to wait for food price correction to happen before we
can start expecting that.""The RBI has slashed its growth rate quite a bit now to 5 per cent
Having said that, we see further downside risk to this growth at this point
We are looking at 4.7 per cent.""The government has very limited fiscal headroom
In terms of big ticket measures, it will be difficult for the government to take measures
They will have to do some small tweaking in terms of rural spending and boost to real estate demand."Siddhartha Sanyal, chief economist and
head of research, Bandhan Bank, Kolkata:"This is a pause, but definitely not the end of the easing cycle
The debate in the coming few months will remain between a cut and hold
An accommodative stance doesn't necessarily mean a rate cut in every single monetary policy meeting.""It was a close call this time for the
MPC, whether to cut or not to cut rates
Given that there is a bit of pressure currently on headline inflation, RBI opted for a pause.""Going ahead, inflation numbers for the next
one or two prints may actually move higher, breaching the 5 per cent mark
Since broader inflation trends are very much under control, I don't think today's pause will be a long-term stance
Once the headline numbers soften - and that should happen relatively soon - it will open up the space for the RBI to deliver more rate
cuts."Anagha Deodhar, economist, ICICI Securities, Mumbai:"The MPC's decision to pause is indeed surprising
This review marks a break from past trends as inflation concerns seem to have taken front-seat again.""Although they have stated that there
is space for future action, I do not see rates going down by much in FY20 as inflation is expected to inch up sharply from here
The effectiveness of monetary policy in stimulating growth is limited in the current context.""The recent GDP data showed that government
spending is the only strong leg of the economy currently
I think the government will let go of the deficit target this year and try to boost growth through increased spending
We could see more sector-specific relief and/or stimulus packages in the coming months.""Fiscal slippage is generally perceived negatively
However, in the current context, I think the MPC will be more tolerant of fiscal slippage and continue with accommodative cycle."Rupa Rege
Nitsure, group chief economist, L-T Financial Services, Mumbai:"Cumulatively, monetary policymakers have done everything that was expected
Their revised projections of GDP and CPI inflation are realistic.""Going ahead, we need more actions from the government - Centre, states
and local bodies that will make "spending" and "taxation" more efficient
This is a deep and protracted slowdown and India will witness a gradual recovery rather than a V-shaped recovery given the headwinds in both
domestic and global economies."Sakshi Gupta, assistant vice-president, HDFC Bank, Gurugram:"The RBI's decision was a surprise, especially
the fact that it was a unanimous decision
In the growth-inflation trade-off, the RBI has clearly leaned towards the latter.""We do not think that the recent inflation spikes are
permanent and as food prices stabilise, headline inflation is likely to cool off by the beginning of next fiscal year
More importantly, core inflation momentum continues to remain weak.""Given the outlook on inflation and as RBI stance remains accommodative,
we do not think this is the last cut in the current cycle but probably a brief pause
Growth momentum is likely to improve gradually, and therefore, it is likely to warrant further rate cuts."Rajesh Cheruvu, chief investment
officer, Validus Wealth, Mumbai:"The MPC unanimously and shockingly left rates unchanged, but maintained accommodative stance against
consensus market expectations of 25 bps cut
Given the widening fiscal deficit concerns, G-Sec supply pressure and wider-than-average spreads, we prefer good-quality corporate bonds
Any truce on the trade war and growth positives will benefit short vs long duration, which is our preferred strategy."Jimeet Modi, CEO,
Samco Securities, Mumbai:"The RBI has finally thrown the ball back in government's court to revive the economic engine, which has further
deteriorated since the last meet
Transmission of interest rates have not happened yet, which could be one of the reasons the RBI waited to cut rates and nudged the
government and banks to take efforts from their end
Additionally, slightly higher inflationary tendencies might have also led to the pause in rate cut.""However, this is a negative for the
markets as a rate cut was required to boost risk taking appetite in the economy."Darren Awe, Asia economist, Capital Economics,
Singapore:"Tentatively, we are pencilling in a 25 bps cut in February
Beyond that, the picture is less clear
A strong recovery in growth in the near term seems unlikely, but there are at least glimmers of stabilisation in the recent data
Although industry continues to struggle, gauges of services activity, consumption and credit growth have all improved a little
And the effect of past monetary and fiscal stimulus should be felt soon
Our base case for now is that the easing cycle will come to an end in February."Kunal Kundu, India economist, Societe Generale,
Bengaluru:"While the decision to pause is not entirely unjustified given the clear lack of efficacy of monetary policy actions through the
policy rate cut channel, what was worrying is that the RBI did not announce any unconventional measure aimed at improving the efficacy of
its monetary policy actions but rather relied on hope for better transmission of its past actions, despite the fact that the transmission of
past actions till date remained rather weak.""We still expect the RBI to cut the policy rate by another 50 bps next year once the low
statistical base effect reverses and headline inflation cools.""For the current financial year, aggregate demand situation looks quite grim
and given the lack of discernible festival period driven bump in demand, we believe that the economy will just muddle through for the next
at least six quarters.""The RBI's downward revision of growth forecast appears prudent
What is a worry though is that the optic of high headline inflation appeared to have taken precedence over a dangerously slowing activity
level.""Following today's decision, the onus of spurring growth shifts firmly on the government
We believe that for the time being, the only short term solution is rising public spending in infrastructure that has a much higher
employment elasticity and help increase the aggregate demand in the economy."
