Here’s what the experts have to say about RBI’s no-rate cut policy

Here’s what the experts have to say about
RBI’s no-rate cut policy
Betting its hope on the NaMo government’s upcoming Budget 2016, RBI governor, Raghuram Rajan, has maintained a status quo on the key policy rates. And more or less, India Inc did expect the apex bank to keep the policy rates unchanged.

“Although the RBI maintained monetary status quo, the accommodative bias continues. With CPI inflation poised to moderate to 5% levels by end FY17 and government committed towards spurring investment led growth and maintaining high quality fiscal consolidation, incremental room for monetary accommodation will open up post the announcement of FY17 Union Budget,” said Rana Kapoor, managing director and CEO of YES Bank.

It must be noted that the RBI has been accommodating in the past one year and has already slashed the repo rate by 125 basis points in 2015. So the banks have had enough room to lower interest rates. Hence, maintaining the maintaining fiscal consolidation is of utmost importance and the RBI has done exactly that.

The country’s fiscal deficit is expected to widen due to decline in exports, the industrial output growth as well as the global economy. The RBI is primarily banking on the upcoming budget to introduce reforms and chart out a fiscal consolidation route map. Once that happens, industries, market analysts are hoping for a rate cut.

Market analysts are expecting that the RBI in the next monetary policy review meet will announce a rate cut of a minimum 25 basis points.

Arvind Chari, head of Fixed Income and Alternatives at Quantum Advisors, too shared a similar sentiment and noted, “The RBI is rightly waiting for the government’s fiscal response. …We expect an inter-meeting cut post the budget -25 basis points or may be even 50 basis points.”

Sharing a similar sentiment, Kapoor of YES Bank added, “I expect the RBI to play a complementary role and lower rates by 75 bps in 2016.” The RBI has kept the repo rate at 6.75% while the Cash Reserve Ratio has been maintained at 4%.