Policy on expected lines, say bankers

With retail inflation measured by the consumer price index rising more sharply than expected in April due to a more-than-seasonal jump in food prices, the RBI on Tuesday maintained status quo on the policy repo rate. Top bankers said that the RBI’s second bi-monthly monetary policy review was on expected lines.

Arundhati Bhattacharya, Chairman, SBI : The decision to keep the repo rate unchanged was as per market consensus. The tone of the policy is fairly balanced, pragmatic and continues to reemphasise that the policy continues to be in accommodative cycle. Inflation trajectory seems broadly in line with RBI prognosis, though we are fairly hopeful of inflation possibly undershooting RBI’s January 2017, 5 per cent target. Capital infusion will be the key, going forward, to support credit growth.

Chanda Kochhar, MD and CEO, ICICI Bank : The RBI’s continued commitment to an accommodative policy stance and the assurance of moving towards a neutral liquidity framework is positive. This should continue to support transmission of RBI’s policy stance.

Additionally, the reassurance that the RBI stands ready to mitigate any financial volatility resulting out of FCNR deposit maturities due later this year is very welcome. Overall, macroeconomic conditions are conducive for an improving growth trajectory as the various policy measures announced by the government take effect. 

 Melwyn Rego, MD & CEO, Bank of India : While the policy repo rate and CRR have been kept unchanged, the RBI has reiterated its stance to progressively lower the average ex ante liquidity deficit in the system from 1 per cent of NDTL to a position closer to neutrality.

This will help in quicker transmission of monetary policy initiatives to support growth. It is comforting to note that liquidity is expected to be stable during the period of outflow of FCNR deposits. .

Ashwani Kumar, CMD, Dena Bank; Chairman, Indian Banks’ Association : A repo rate cut was not expected at this juncture and hence, the announcement also was on expected lines. However, the accommodative stance is maintained, leaving room for further easing of rates if supported by positive macroeconomic developments.

From banks’ point of view, two important indicators to look from the policy are its take on inflation and liquidity management. Though there was a spurt in retail inflation in April, the RBI is quite confident to remain in the target level of 5 per cent by March 2017. As far as monetary policy transmission is concerned, to a large extent, banks have transmitted the benefits of earlier policy cuts to borrowers by way of MCLR, which is to be reviewed by the RBI shortly. With the revival of public and private investment and aided by timely recapitalisation, going forward, banks would be in a position to support credit growth.

Rana Kapoor, MD & CEO, YES Bank : “I foresee RBI’s cautious stance giving way to accommodative actions in August, on the back of favourable monsoon outcomes and sustained acceleration of government reforms.

Despite a compelling case to cut interest rates amidst favourable monsoon outlook, CPI inflation in line with RBI’s projected path, government’s progressive reforms and fiscal consolidation and the need to nurture growth, the RBI has preferred to remain cautious. It appears that the uncertainties on the global horizon with Fed policy overhang and the UK’s Brexit vote tipped RBI’s decision in favour of status quo. With its accommodative stance still in place, I now see high probability of a rate cut in August by at least 50 bps.

P Jayarama Bhat, MD and CEO, Karnataka Bank : The RBI is expected to closely watch the prevailing and unfolding domestic and global uncertainties before undertaking any additional future interest rate cuts.

In the backdrop of moderately rising inflation, increase in global commodity prices, Brexit, US interest rate volatilities and weak global economic performance, the RBI has adopted a cautious approach without altering the policy rates at this stage.

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