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The RBI maintaining the status quo on repo rates has been hailed by experts.
Dr Devendra Kumar Pant, Director and Head — Public Finance, India Ratings, said the RBI had taken the correct step to hold the repo rate at 8 per cent. He said the Government’s recent initiatives would push up inflation in the short term.
He said, “September inflation has only seen the direct impact of an increase in diesel prices; the indirect impact in the form of increased freight is yet to be reflected in inflation. Interest rate is a necessary but not a sufficient condition to stimulate investment demand."
Elaborating further he said, “The structural shift in India’s growth momentum during FY04-FY08 was achieved due to two factors: strong global growth and increased savings rate. Currently, these two factors are exerting pressure on the Indian economy. The global economy is sluggish and the savings rate has fallen drastically. Cutting the interest rate during a period of high inflation will discourage savers. At the same time, a higher proportion of savings would be directed towards physical savings in the form of property and gold.”
Moses Harding, Head - ALCO and Economic & Market Research, IndusInd Bank, said the delivery of a token 25 bps CRR cut was cosmetic when the deficit system liquidity is more than 1.25% of net demand and time liabilities (NDTL).
He said, “The stance of the RBI is seen as conservative and not cautious post recent developments. So, it is back to waiting-time for the shift into rate cut mode, expected in January-March 2013.”
He expected the 10-year bond yield would get into consolidation mode at 8.12-8.17 per cent with the March 2013 target at 8.02-7.97 per cent. The impact is neutral on the rupee exchange rate to extend its consolidation mode at 53.20-54.20, he said.
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