Money & Banking

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

Our Bureau Mumbai | Updated on December 05, 2019 Published on December 05, 2019

File photo

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.

Published on December 05, 2019

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.