Mumbai: The Reserve Bank of India (RBI) kept its policy rate on hold at 6.75 per cent on Tuesday, as widely expected, opting to wait until after the government's annual Budget statement at the end of February to decide on whether to cut interest rates further.
Almost all of the 39 economists polled by Reuters had expected the RBI to keep interest rates on hold on Tuesday.
The central bank cut the repo rate by 125 basis points in 2015, including by a bigger-than-expected 50 bps in September. It held rates at its last meeting in December.
COMMENTARY
Rupa Rege Nitsure, group chief economist, L&T Finance Holdings, Mumbai:
"Given the flexible inflation targeting framework that we have formally adopted, I don't see any scope for rate reduction beyond 25 bps which may happen around budget time only after the RBI is convinced about the fiscal consolidation roadmap of the government. It may happen outside the policy also if the RBI feels the government has stuck to its fiscal deficit target, just to endorse the action."
"The RBI cannot take contradictory measures by not reducing repo rate and then infusing liquidity. Liquidity tightness has happened due to mismatch between demand and supply."
R Sivakumar, head of fixed income, Axis Asset Management, Mumbai:
"Clearly they are watching out for the budget to the extent that if the fiscal situation remains tight we will see more rate cuts to support growth, but if the government elects to support growth through fiscal spending then the quantum of rate cuts will be limited."
"There is uncertainty around inflation next year due to the pay commission, they have alluded to that. In the near term CPI will remain elevated because of the way the CPI is calculated, therefore RBI will wait for more data to see the one-off effect of the pay commission before they can form a medium term view of the trajectory of inflation."
"There is the realisation that with low commodity prices rate cuts continue globally, whether it's Japan or China. So the fact is that rate cuts are the order of the day and there is realisation that eventually India too will need to cut rates. It's a matter of timing and they believe they have time on their hands."
A Prasanna, economist, ICICI Securities Primary Dealership Ltd, Mumbai:
"The policy was along expected lines. We continue to expect a residual 25 BPS cut in repo rate in April, assuming the government sticks to its fiscal roadmap."
Almost all of the 39 economists polled by Reuters had expected the RBI to keep interest rates on hold on Tuesday.
The central bank cut the repo rate by 125 basis points in 2015, including by a bigger-than-expected 50 bps in September. It held rates at its last meeting in December.
COMMENTARY
Rupa Rege Nitsure, group chief economist, L&T Finance Holdings, Mumbai:
"Given the flexible inflation targeting framework that we have formally adopted, I don't see any scope for rate reduction beyond 25 bps which may happen around budget time only after the RBI is convinced about the fiscal consolidation roadmap of the government. It may happen outside the policy also if the RBI feels the government has stuck to its fiscal deficit target, just to endorse the action."
"The RBI cannot take contradictory measures by not reducing repo rate and then infusing liquidity. Liquidity tightness has happened due to mismatch between demand and supply."
R Sivakumar, head of fixed income, Axis Asset Management, Mumbai:
"Clearly they are watching out for the budget to the extent that if the fiscal situation remains tight we will see more rate cuts to support growth, but if the government elects to support growth through fiscal spending then the quantum of rate cuts will be limited."
"There is uncertainty around inflation next year due to the pay commission, they have alluded to that. In the near term CPI will remain elevated because of the way the CPI is calculated, therefore RBI will wait for more data to see the one-off effect of the pay commission before they can form a medium term view of the trajectory of inflation."
"There is the realisation that with low commodity prices rate cuts continue globally, whether it's Japan or China. So the fact is that rate cuts are the order of the day and there is realisation that eventually India too will need to cut rates. It's a matter of timing and they believe they have time on their hands."
A Prasanna, economist, ICICI Securities Primary Dealership Ltd, Mumbai:
"The policy was along expected lines. We continue to expect a residual 25 BPS cut in repo rate in April, assuming the government sticks to its fiscal roadmap."
© Thomson Reuters 2016
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