(Image source from: RBI waits and watches})
Reserve Bank of India kept interest rates on hold at 7.50%, choosing to wait longer to assess inflationary pressures before making its next move and to give banks more time to adjust lending rates to reflect previous rate cuts. The RBI said in a statement that it would maintain an "accommodative stance". Higher US interest rates are expected to lead to capital outflows from some emerging market economies; Indian rupee has remained firm against other currencies. "At this point, we feel we are adequately buffered. That is not going to be the key factor in determining our monetary policy stance going forward," Rajan said.
The Main highlights are as below
1. RBI keeps repo rate steady at 7.75%.
2. Reiterated its target of 6% CPI by January 2016
3. Sets a new target of 4% by the end of 2017/18, the midpoint of the CPI range
4. RBI to allow Indian corporate to raise external commercial borrowings through rupee debt overseas
"A predictable policy with no surprise as such. Even if it has maintained status quo on monetary measures, it has announced a few growth-supportive structural measures to facilitate long-term funding by banks to infrastructure to improve policy transmission. The RBI's year-end inflation forecast supports our earlier prediction that one more rate cut of 25 basis points is in the offing around June 2015," said Rupa Rege Nitsure, group chief economist, L&T financial, Mumbai.
"It's a wait and watch policy while keeping the positive stance intact. The governor wants earlier 50 bps cuts to percolate to the economy. He is waiting for other stakeholders to do their part including government to remove supply side bottlenecks and banks that still need to do transmission of policy," said Killol Pandya, Senior fund manager, LIC Nomura MF asset management, Mumbai.
"The RBI kept all rates on hold and said that future policy action will be contingent on transmission of lending rates into the real economy as well upcoming data. I still think we need more accommodative liquidity conditions in the next six months to improve transmission as well as see higher lending growth. We expect the OIS curve to steepen. Look for 2s5s to move towards +25 basis points from current -12 basis points", said Kumar Rachapudi, fixed income strategist, ANZ bank, Singapore.
"Policy will remain data driven. For the rest of the year, one can expect 25-50 bps cut, but timing of the same is a tough call. Changes in bond markets are quite positive. The RBI now expects primary dealers to offer liquidity in semi-liquid government securities, which should improve the structure in bond markets. Changes on external commercial borrowings for corporates would also have a positive impact," said R Sivakumar, Head of fixed income, Axis asset management.
By Premji
