Stocks

RBI has little elbow room, feel analysts

Our Bureau Mumbai | Updated on March 12, 2018

Reform, not stimulus, is required: BNP Paribas

The markets have been buoyant in their acceptance of IIP numbers. While the IIP data grew a mere 0.1 per cent, the benchmark indices rose by 1.1 per cent. The rally in the markets was led by the expectation among investors that the RBI would now veer towards a rate-cut to induce investments and growth.

However, most analysts seem to disagree. According to them, the RBI is now caught on the horns of a dilemma. Even if the weak IIP numbers demand a rate-cut, high inflation, depreciating rupee and lack of policy support make it difficult for the RBI to cut rates.

Slipped once again

A report by foreign brokerage, BNP Paribas says, “Another miserable Indian statistic as industrial production growth stagnates in April. After bouncing around the turn of the year, growth momentum appears to have slipped back once again to a decidedly sub-par pace. Lacklustre growth by definition increases policy space for the RBI but re-accelerating inflation, a still fragile rupee and continued lack of policy action in New Delhi suggest a rate freeze. Reform, not stimulus, is required to reboot India's macro-economic performance.”

Some analysts feel that the rate-cut will have limited affect on the markets as the liquidity deficit continues to be high at 1.4 per cent. A report by Emkay Global Financial Services says, “The rate cut even if done in an environment of steep liquidity deficit will not have meaningful bearing on the borrowing costs.

“One must bear in mind that the liquidity deficit is at 1.4 per cent despite Q1 being lean season in terms of loan pick up. Hence, we believe that even if rate cut is done in forthcoming mid-quarter review, as we progress towards the second half of FY13, its impact on the interest rates will fade away.”

But Morgan Stanley said, “While we have been bearish on India's growth outlook, we believe that IIP growth over the past few months may be overstating the magnitude of deceleration in economic activity.”

>sneha.p@thehindu.co.in

Published on June 12, 2012

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