The Reserve Bank of India on Wednesday raised its policy rate for the first time in more than four years, due to inflation concerns, but kept its policy stance as 'neutral'.The monetary policy committee lifted the repo rate by 25 basis points to 6.25 per cent, the first increase since January 2014, as predicted by 46 percent of respondents in a Reuters poll this week.
All six members on the rate panel voted for an increase.The reverse repo rate was also raised by 25 basis points to 6.00 percent.
Before Wednesday, the last policy rate change was a 25 bps cut in August 2017.Here's how different Dalal Street experts and India Inc's captains reacted to the RBI rate hike.Nilesh Shah, MD, Kotak Mahindra AMCFrom a debt market point of view with one-year T-bill at 7%, debt market has not only priced in this rate hike, but also couple of more rate hikes to come.
The spread between repo rate and T-bill over last 10 years has been about 25 bps.
Key is now, is market pricing in another two rate hikes -- sufficient, non-sufficient -- will the trajectory of inflation be higher than what was forecasted by the RBI earlier, what will be the impact, how will they consider the impact of MSP increases or oil price increasesMotilal Oswal, Chairman MD, MOFSLRBI Governor changed the rate little higher, as at this juncture that was the best thing to do.
India is in a situation where anything sharp can hurt economy.
If we raise the Interest rates too fast too sharp ,and try tightening the money supply it can hurt the corporate earnings, which are just about on cusp of expanding.
Lowering of interest further was not the case at all as global volatility due to CRUDE and rate tightening never offered that option.Abheek Barua, Chief Economist, HDFC BankSensible and cautious response to the risks that have unfolded since the last meeting.
This is not likely to be end of the hike cycle as domestic price risks such as MSP hikes and firm global commodity prices would warrant further monetary action.Pronab Sen, Former Principal Advisor, Planning CommissionThe RBI had only one of two choices -- either it raised the rates and kept the stance neutral or they kept the rates where they were and had a hawkish stance.
They have chosen the former.
The real question is that keeping a neutral stance means that we are really uncertain of what is going to be happening.
Frankly I would wait until that decision would be taken.Sumedh Deorukhkar, Senior Economist, BBVARate hike is pre-emptive and in line with the Reserve Bank of India's neutral-to-hawkish policy tone.
The RBI has sounded more sanguine over growth prospects going forward, while flagging upside risks to inflation, particularly emanating from higher crude oil prices and the wage-price setting process due to closure of output gap.Expect one more rate hike before the end of calendar year 2018 if core inflation remains elevated despite some potential moderation in growth.Ramesh Nair, CEO Country Head, JLL IndiaThe RBIs decision to increase repo rates by 25 bps to 6.25% after 4 years speaks of a carefully deliberated decision in light of the recent inflationary pressure on the economy.The hike may seem to dampen sentiments in the market but in terms of real estate it may have little or no impact.
As almost all home loans these days are on floating rates, the rise and fall in home loan rates does not impact the performance of residential real estate sector much and tends to balance each other out over long term.Tanvee Gupta Jain, Chief India Economist, UBS Securities IndiaWe were already pricing in a 40 per cent probability of a rate hike in this policy, and 50 bps rate hike in FY19.
We do expect one more rate hike by the Monetary Police Committee over the next few months, most likely in August, if oil prices continue to remain higher.Sudhakar Pattabiraman, Head Of Research Operations at William O'neil's MarketsmithI was not expecting the hike to happen this month, but was expecting it in August.
If the current trend of increasing inflation and oil prices continues, we expect another 25 bps hike somewhere during the year.
The committee seems to be pretty clear that there should not be an effect from the rate hike on economic growth.Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares And Stock BrokersDuring this calendar year, the Reserve Bank of India is unlikely to do any further rate hikes, and beyond that, it will be extremely data-dependant.
With the normal monsoons, we don't see much upside to oil prices from the current level, and also we expect the industrial production growth to falter after few months of pretty strong growth.
We don't see further strengthening of inflationary forces, but we see some weakening of growth parameters.(With inputs from Reuters)