Dalal Street experts say RBI right in holding rates

The Reserve Bank of India (RBI) held rates steady on Thursday and retained an accommodative policy stance as it sought to support faltering growth and avoid stoking already high inflation levels, Reuters reported.

All six members of the MPC voted to keep rates steady and retain the accommodative monetary policy stance.

Here’s how Dalal Street experts and economists reacted to RBI policy decision:

Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers
Despite our expectation of no rate cut in 2020, the categorical statement by MPC about the possibility of rate cut should boost sentiments. Minor fall in some lending rates, boost to bank NII. Linking credit to medium industries to external benchmark, removal of CRR requirement on fresh retail housing and auto loans and credit to MSME are positive steps. These steps may marginally reduce the interest rates on such fresh loans. The removal CRR select loans (around15 per cent of banks’ outstanding loan book) is also likely to give a temporary boost to banks’ net interest income.

Jimeet Modi, Founder & CEO, Samco Securities
Budget Part II was delivered by RBI in the form of lowering costs to MSMEs and bringing some life into realty wherein loans to commercial sector will be considered as standard. RBI indeed used all its might to force banks to lower interest rates to induce transmission for the benefit of end users, which it has partly achieved. New loans are now 69 basis points (bps) cheaper and old loans are cheaper by 13bps given the total 135 bps cut in 2019. RBI has smartly lubricated the slower moving parts of the economy.

Amar Ambani, Senior President & Institutional Research Head, YES Securities
With inflation expected to remain elevated in the coming months, we see a long pause on Repo rates. However, we expect the RBI to continue to act with other monetary tools like OMOs and Operation Twist. RBI and government will likely take steps to improve transmission of rates in the economy. We see headline inflation coming off significantly in H2 FY21, with favorable base effect kicking in and fuel and food prices decelerating. RBI will be in a position to cut rates again after a long pause, in our opinion. We’re yet to work out extent of cuts, but a 25 basis points should come through at the very least.

Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities
With favorable impact on market interest rates and borrowing costs, the RBI’s announcement of lower CRR maintenance through reduction in NDTL calculation to the extent of incremental retail lending for automobiles, residential housing, and MSMEs could be positive for credit flow in the medium term. Overall, the RBI has delivered positively towards growth and credit without deviating from the inflation targeting framework. Evolution of borrowing costs as well as credit flows need to be carefully watched.

Shubhada Rao, Chief Economist, YES BANK
RBI’s final monetary policy review for FY20 was well in line with expectation, viz. maintaining a status quo on policy rates while maintaining an accommodative stance. Accelerating CPI inflation well above the upper bound of the indicative band of 2%- 6% along with muted though marginally improving growth conditions in the economy prompted the action. Going forward, the near term outlook for inflation remains worrying led by protein-items inflation and price pressures emanating from services sector. The growth inflation dynamic is likely to improve towards Q3FY21. This is in line with our own expectation. As such, we maintain our call on a status quo on policy rates until September 2020 with a space opening up for a 25 bp rate cut in October 2020 monetary policy review, assuming a normal monsoon. In addition, the RBI has extended the regulatory forbearance for MSMEs and CRE sectors. Furthermore for housing and automobile sectors incremental bank credit has been incentivized. This bodes well for overall improvement in credit appetite.

Mihir Vora, Director & Chief Investment Officer, Max Life Insurance
While the policy suggests that there is space for further rate action, a cut in the April policy would hinge on trends in food inflation. A 25 basis points (bps) rate cut in the next 6 months is possible. We expect the RBI stance to remain liquidity accommodative.

Anuj Puri, Chairman, ANAROCK Property Consultants
In a major relief to the real estate sector and further complementing many of the previous initiatives by the government in 2019, RBI has decided to extend the restructuring of project loans by a year. Loans for projects that have been delayed for reasons beyond the control of their promoters have been extended by another one year without downgrading the asset classification. This aligns with the treatment accorded to other project loans for the non-infrastructure sector. This is a big move and will bring the much-needed relief to the cash-starved real estate sector - and to both developers and the HFCs from the liquidity perspective. It will help ease out the time for maintaining and managing cash flows for cash-strapped developers and help them to completing several stuck projects. That said, it will not address the other main issue prevailing in the real estate sector – that of continuing low demand.

Joseph Thomas, Head of Research, Emkay Wealth Management
It was widely expected that the RBI was likely to continue with the pause till there is greater visibility on the inflation front. At this juncture, rate modification is actually not required as the interbank market has a huge surplus of close Rs.3 Lakh Crs to support the liquidity requirements of the system, and this alone will ensure that the short-term rates do not move up. The status quo comes as a relief to the short end of the curve, but the pressures at the long end may persist for longer time.

Deepthi Mary Mathew, Economist at Geojit Financial Services
It was an expected move by the RBI, maintaining the repo rate unchanged at 5.15 percent. With the inflation rate breaching the upper band, it will take time for the Central Bank to revive the rate cuts. By maintaining the accommodative stance, there is scope for rate cuts once the inflation rate falls back to a comfortable level.

Ravikant Bhat, Senior Analyst - BFSI, IndiaNivesh
RBI expectedly held the policy rates even as it raised the near term inflation forecast to 6.5%. However, noting improved arrivals of Kharif and Rabi harvests and easing household inflation expectations, the inflation is forecast to ease to 3.2% by Q3FY21E. The accommodative stance of the policy alongwith multiple supportive measures for MSMEs, NBFCs and banks are steps in the right direction which will help ease credit flow, help banks manage stress and soften loan pricing.

Rumki Majumdar, Economist, Deloitte India
As had been expected by us, the RBI decided not to cut rates and to be in a wait-and-watch mode in the Feb policy meeting while continuing on with an ‘accommodative’ stance. This is because inflationary nor demand pressures for goods other than food in the near future may remain low owing to weak demand and excess capacity issues. The expansionary monetary policy stance was necessary and is an assurance that there will be no reversal of easing and that the RBI will not hike rates immediately.

Suman Chowdhury, President – Ratings, Acuité Ratings & Research
The MPC's decision to hold the policy rate has been completely in line with our expectations. RBI believes that the inflation outlook remains uncertain and may remain elevated through the first half of FY21. Also, it expects the interest rate transmission to be more effective and act as a growth booster as more banks link their lending rates directly to the policy rate. Therefore, any further rate cut looks a little unlikely in the next two quarters though RBI has decided to 'persevere' with the ongoing accommodative policy. The central bank has also decided to incentivize banks' lending for retail and MSMEs further by giving equivalent benefit on their CRR requirement.

Ranjan Chakravarty, Economist and Product Strategist, Metropolitan Stock Exchange
The RBI has wisely chosen to align itself with market expectations in this announcement. At this delicate juncture in the growth story any sudden unexpected move would have spooked the market, which was the last thing needed. The implicit tightening in leaving repo rates unchanged and the continuation of the accommodative stance augur well to manage inflation and set the stage for the coming turnaround in 2H, 2020.

Amit Gupta, Co-Founder & CEO, TradingBells
The market is taking this policy on a very positive note where Nifty has taken out its crucial supply zone of 12100-12135. If it manages to sustain above this zone then it may head towards 12300 mark and even lifetime high can't be ruled out in the coming days while in the downside 12000-11950 zone has become a strong base. NBFC stocks like HDFC Ltd, M&M finance, L&T finance, Shriram transport finance, Bajaj Finance, PEL and LIC Housing finance are major beneficiaries for the move taken by RBI. In terms of banking stocks, Axis Bank, Federal Bank and IndusInd Bank are the key beneficiary. The relief for the real estate sector will be helpful for stocks like DLF, Oberoi Realty, Godrej Properties, Prestige, Sobha, etc.