Status quo on repo rate comes as a surprise says India Inc

India Inc, which was expecting a rate cut to tide over the ongoing consumption slowdown, said that they were surprised with the Reserve Bank of India's decision to hold rates. 

Arun Kumar, Head of Research at FundsIndia.com said, "Today’s status quo on repo rates came as a surprise as consensus was for a 25 bps rate cut. However, RBI continues with its accommodative stance given its outlook for moderation in inflation below 4 per cent by H1 FY21. The concerns on relatively higher inflation (4.7-5.1 per cent) expected in the near term has led to the pause in rate cuts."

While the RBI has left space for future rate cuts, better monetary policy transmission, improvement in tight credit conditions and support from fiscal policy will remain the key for sustainable recovery.

'Surprise and disappointment'

Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, "The industry expectation was that slowing economic growth would take precedence in RBI’s policy decision. Hence, RBI’s decision to not lower interest rate has come as a surprise and a bit of a disappointment to the industry. Lower interest rate would have helped push up credit demand and investment in the economy, aiding overall economic growth. It would have provided much required reprieve to some ailing sectors like real estate and auto."

The RBI has probably taken the cautious approach of wait and watch to see the effect of past rate cuts and also to assess the inflation trajectory. With economic growth remaining subdued, there are still chances of a rate cut in the next meeting.

Ranjan Chakravarty, Economist and Product Strategist at Metropolitan Stock Exchange, said that the pause in rate cut tantamount to an implicit rate hike. "This is premature and unwarranted, in our opinion, because this is a demand-side reaction to supply-side retail inflation. Growth is left unaddressed. At least, the saving grace is that no ammunition was expended on piecemeal measures. We still hope that the growth priority prevails and a substantial easing is brought about in the next policy cycle."

Karan Mehrishi, Lead Economist at Acuité Ratings and Research said, “Today’s pause exercised by the MPC is contrary to the market expectations that RBI will continue to cut rates to boost the growth sentiments. We had talked about a likely pause in the rate cut cycle given the near term risks to inflation brought about by food inflation. Any rate cut at this juncture may have only limited impact on the growth trajectory particularly in the context of weak monetary transmission. Further, our liquidity model was showing significantly comfortable systemic liquidity. The growth and inflation dynamics at this point is surely creating uncertainty regarding the near term direction of monetary policy."

'Wait and watch'

“Reserve Bank of India’s (RBI) unchanged rate announcement signifies a wait and watch stance to understand the market and governments reaction to the rapidly unfolding market data,” said Mrutyunjay Mahapatra, MD & CEO, Syndicate Bank while reacting to apex bank’s Credit Policy.

“The bond market and money market are likely to be more stable till the policy and fiscal measures from government are announced. As the deposit rates are moderating transmission of earlier rate cuts by banks are expected to continue further,” he added.