The Hindu Business Line : Market welcomes mid-path credit policy

Chennai, April 29 Market participants have appreciated the RBI’s credit policy, which, according to them, is a good strike between growth and inflation.

Mr Alex Mathew, Head, Research Centre, Geojit Financial Services Ltd, said: “Investors were expecting an interest rate hike, but the RBI increased only the CRR rate by a quarter percentage and left the repo and reverse repo rates untouched; which boosted the overall market sentiment.”

According to Mr Sandesh Kirkire, CEO, Kotak Mahindra Mutual Funds: “The RBI move to keep the repo rate unchanged in the face of severe inflationary pressure reaffirms the fact that the inflation is mainly supply-induced and can be best handled only through the fiscal measures. The CRR hike, however, ensures no liquidity overhang in the system and achieves the policy objective of lower inflation.”

Cumulative impact

“The RBI continues to focus on liquidity management to tame inflation. The central bank has raised the CRR by 25 bps but has sensibly left the interest rates unchanged, to strike a balance between growth and control on inflation. It has been taken positively by the markets,” said Mr Gaurav Dua, Head-Research at Sharekhan Ltd.

According to Emkay Share & Stock Brokers, “We expect the cumulative impact of 75 bps increase in the CRR on the net interest margins (NIMs) to the extent of 6 bps, as we have been mentioning the impact of the same could partially be compensated by rising yield on investments as the auction yields on dated securities have been moving up and are likely to continue the trend.”

According to Mr Devendra Nevgi, CEO & CIO, Quantum Asset Management Company Pvt Ltd: “The focal point of the policy remained on ‘anchoring the inflationary expectations, rather than inflation itself”, which had fairly heightened recently due to the unprecedented rises in food and global commodity prices. “The RBI will keep its window open on further tightening, if the prevailing situation warrants and its inflation tolerance is expected to be very low in coming months.”

Hawkish stance

According to Mr Hitesh Agrawal-Head of Research, Angel Broking: “The credit policy maintained its hawkish stance by hiking the CRR by 25 basis points to 8.25 per cent. These measures are estimated to suck out around Rs 28,000 crore from the system. Though the liquidity situation in the system is currently comfortable, the announcement would have its short-term negative impact. On the banking sector per se, the impact of the same would be negative, especially for the PSU banks, which have a lower fee component to their overall business pie compared with the private players in the space. However, the commendable part is that, even after these measures, the Indian economy is expected to sustain an 8 per cent GDP growth, which still remains attractive, given the slowdown being witnessed in the global economies.”

A Religare Research note said: “On May 4, we expect about Rs 23,000 crore to come into the market due to bond redemption. This would have negated the increase of 50 bps in the CRR that the RBI made earlier. Therefore, the RBI has increased the CRR rates by another 25 bps.

“We expect some more tightening of liquidity post-May 4; but, this would be using other soft measures like selling bonds, etc.”

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