Citing risks to the inflation outlook from volatile and elevated oil prices, impact of increased minimum support price for kharif crops, mounting trade tensions and tightening of financial conditions, the RBI, on Wednesday, upped the repo rate by 25 basis points to 6.50 per cent.
The central bank had increased the repo rate by a similar quantum in the preceding (second) bi-monthly policy. Top bankers termed the rate hike as ‘frontloaded’, and felt that the neutral policy stance gives the central bank options to move the rates in either directions.
Rajnish Kumar, Chairman, State Bank of India
The RBI decision to raise the repo rate by 25 bps for the second time in succession is a clear desire to frontload the rate-hike cycle. Simultaneously, the decision to keep the stance in neutral mode indicates the RBI’s willingness to be flexible and accommodative, with global growth continuing to be uncertain. On the development front, the bouquet of measures are positive. In particular, the decision of co-origination of loans between banks and NBFCs for lending to priority sector, would be a win-win for all. Further, the RBI has indicated to review the FEMA guidelines to allow Indian multinationals to hedge currency risks of their global subsidiaries from India. The decision of taking a comprehensive review of financial market timings will bring uniformity across products and markets.
Shyam Srinivasan, Chairman (Officiating), Indian Banks’ Association, and Managing Director and CEO, Federal Bank
The third bi-monthly policy of the RBI has frontloaded the rate hike by another 25 basis point and that too in quick succession. However, the continuance of the neutral stance is quite comforting. Though there are several risk factors to growth, which could tilt on either side, the RBI has not only maintained the growth projection of 7.4 per cent for this fiscal but also projected a higher rate of 7.5 per cent for the first quarter of next year as well. This could cheer the markets. Since the impact of the recent MSP hike on inflation is yet to unfold, the RBI has increased the inflation projection to 4.8 per cent from 4.7 per cent for the second half of the year. By projecting a 5 per cent inflation rate for Q1 of FY 2019-20, the central bank has signalled the trajectory of inflation for the coming days. Assurance of comfortable liquidity is always music to bankers. RBI has done a splendid job on it as well.
Rana Kapoor, MD and CEO, YES Bank
The rate-hike is a rational response to the recent acceleration in inflation momentum in my view. However, with the peak of CPI inflation now behind us, and monetary transmission playing out gradually here on, I expect a pause in the remainder of FY19. I foresee the RBI re-focusing on the growth-inflation mix, as the cumulative impact of 50 bps of rate hike is assessed, amid an uncertain global environment.