Bankers and industry cheered the first rate cut by the Reserve Bank of India in more than one year and believe there is scope for further easing given the benign inflation outlook.

“The policy rightfully signals that rates may further soften further going forward, with headline inflation consistently undershooting RBI inflation mandate and inflation expectations materially down,”said Rajnish Kumar, Chairman, State Bank of India, adding that the other announcements such as rationalising the risk weights for on lending to rated NBFCs and opening the ECB route for IBC applicants will “trigger a new paradigm for financial markets”.

Sunil Mehta, Chairman, Indian Banks’ Association and MD and CEO of Punjab National Bank agreed and said the new RBI Governor’s maiden policy has a big positive effect on the banking sector. “The rate cut will boost the slowing economy after a sharp fall in the inflation rate,” he further said.

The last time the RBI had cut rates was in August 2017 and it is being felt that this is after long that the RBI’s MPC has moved away from controlling inflation to focussing on economic growth.

“We see another 25 basis point cut on April 4 to support growth,” said a BofA Merrill Lynch Global Research report.

Abheek Barua, Chief Economist, HDFC Bank noted that growth is back on the RBI’s agenda. “Growth back in the RBI’s vocabulary, not as a risk to price stability but as a legitimate target. Fiscal concerns and the inflationary consequences seems to be underplayed,” he said.

“The resumption of rate easing cycle, which is anticipated to bring down banks’ lending rates, will provide a fillip to both consumption and investment demand,”said CII President Rakesh Bharti Mittal.

However, some risks to inflation can emerge from consumption focussed expansionary fiscal policy, sticky core inflation, and normalisation of food inflation (currently negative) which could gain speed if monsoons are sub-normal. “RBI’s inflation assessment does not see these risks as material,”Crisil said, adding that future decision on policy rates would be data driven.

Shubhada Rao, Chief Economist and Vivek Kumar, Senior Economist at Yes Bank said they expect average CPI inflation to edge towards 4.1 per cent in 2019-20 from an average of 3.7 per cent in this fiscal. “This calls for a prolonged pause in monetary policy with the likelihood of a moderate improvement in GDP growth momentum in the backdrop of a consumption led fiscal stimulus,” they said.

Related Topics
comment COMMENT NOW