The Hindu Business Line : RBI’s stance is a ‘rational one’

While the RBI left all key rates unchanged, the bond and stock markets still expect the policy stance to soften eventually. Bond yields are up only a few basis points on the announcement and stocks are stable. It seems RBI is still focused on liquidity management, M3 growth and potential inflation. Based on current data, that’s a rational stance; the risk however is that the economy slows down more than expected and the RBI is forced to act more quickly in a few months.

Mr Indranil Sengupta, Economist, Research, DSP Merrill Lynch:

We continue to believe that the Indian rate cycle is peaking off, although the RBI did disappoint on our expectation of a 25bp LAF repo rate cut. This reflects a steady normalization of credit offtake with a soft landing of the Indian economy. At the same time, we continue to underline, as before, that the top off will only be a top off, not any significant easing. It is easy to appreciate the RBI’s monetary dilemma: while a robust domestic economy calls for a tight monetary regime, a rising differential with the Fed calls for easing rates to cap appreciation. We expect the RBI to resolve by multiple action – cutting rates a bit, hiking CRR to counter the rising inflationary risk of monetary expansion and perhaps impose further capital controls.

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