|Chennai||Rs. 27770.00 (0.07%)|
|Mumbai||Rs. 29200.00 (2.31%)|
|Delhi||Rs. 27900.00 (-0.36%)|
|Kolkata||Rs. 28270.00 (1%)|
|Kerala||Rs. 27050.00 (-0.37%)|
|Bangalore||Rs. 27550.00 (1.66%)|
|Hyderabad||Rs. 27770.00 (-0.14%)|
The RBI reduced its policy interest rate by a widely expected 25 basis points on Tuesday, taking comfort from cooling inflation as it made the first cut in nine months to support an economy headed for its slowest growth in a decade.
The Reserve Bank of India (RBI) cut its key repo rate to 7.75 percent, as forecast by a Reuters poll.
The RBI unexpectedly also reduced the cash reserve ratio (CRR), the share of deposits banks must keep with the central bank by 25 bps to 4.00 percent, which will infuse an additional 180 billion rupees into the banking system.
RADHIKA RAO, ECONOMIST, FORECAST PTE, SINGAPORE
"It is a timely reduction in the repo rate by the central bank though markets are swiftly likely to look beyond the priced-in move and focus on the policy guidance. RBI has not abandoned its cautious stance, stressing on the 'calibrated and limited' nature of rate support hereon. Scale of rate cuts is closely tied to the government's sustained efforts to correct the twin imbalances and moderating inflation trajectory. Even as few quarters price in substantial rate cuts going forward, we see room for only 75 bps more cuts by end-year."
SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI
"As expected a 25 bps repo cut is well justified amidst sticky retail inflation and subdued investment activities. Further the 25 bps CRR cut though a bit of a surprise, signals limited chances of further OMOs in the rest of the fiscal. The tone of the policy seems neutral with due consideration to support growth at a higher inflation trajectory. We expect the bonds to trade rangebound with limited chances of further OMOs up till budget.
"We expect another 25 bps rate cut at the March policy meet and the qualitative fiscal management measures during the upcoming budget session would be the guiding factor in deciding the quantum and timing of future rate cuts in the next fiscal."
JONATHAN CAVENAGH, STRATEGIST, WESTPAC, SINGAPORE
"Combined with the reasonable drop in the inflation forecast, the market is probably encouraged to belief more cuts will be forthcoming. The fiscal side will be critical though and if the RBI feels the government's reform push is slipping, rate cuts will be put on the back burner.
"Indian equities have recovered earlier losses but are only up modestly. A more decent reaction in USD/INR but this move is probably being helped by the broader move lower in USD/Asia. Further downside in USD/INR is likely, although firmer support is likely to emerge around the low 53.60/high 53.50 region in terms of the spot market."
SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI
"The Reserve Bank of India is definitely less hawkish in its statement, and we think it will remain in the easing mode in 2013. We think they will cut the repo rate by another 50 basis points in the next five months.
"The cut in the cash reserve ratio is very positive for banks, but we think it will be the last CRR cut. However, the RBI will continue to buy bonds through its open market operation to ease tightness in liquidity."
AJAY SETH, CHIEF FINANCIAL OFFICER, MARUTI SUZUKI, NEW DELHI
"It is a small reduction. Industry was hoping for a 50 basis point cut but it is smaller than what we were expecting. Hopefully, rate cuts will happen progressively over the next couple of months. It is too early to say what will happen or how much will happen, but any reduction is good. But it has to be a meaningful number to trigger any revival or demand coming back. I don't think 25 basis points will make much of a difference (to demand scenario), unless over a period we see rate cuts of 150-200 basis points."
DARIUSZ KOWALCZYK, SENIOR ANALYST, CREDIT AGRICOLE CIB, HONG KONG
"RBI cuts rates 25 bps as expected but also, unexpectedly, lowered the CRR, providing more support to the economy than markets anticipated.
"The statement points to further, albeit modest, room for easing, as FY13 GDP growth forecast is lowered by 0.3 percentage point to 5.5 percent and March WPI forecast is cut by 0.7 percentage point to 6.8 percent. Overall, this should boost the INR, push down G-Sec yields and INR OIS at the short end, and lead to a steepening move on the curves."
RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI
"In broader terms, monetary policy is supportive of growth. This is substantial easing of 50 basis points, the repo and the CRR together. There is definitely scope for lending rates to come down. However, further growth outlook now depends on the structural reform measures that are likely to be introduced in the union budget.
"The revised inflation projection of 6.8 percent for March is likely to be achieved provided there is no further increase in administered prices of either fuel or foodgrains."
HEMANT KHANWALA, HEAD OF EQUITIES, KOTAK LIFE INSURANCE, MUMBAI
"This is well measured move because until the inflationary pressures do not subside, the RBI governor will look to manage both inflationary expectations and slowing growth.
"Overall it looks the RBI will adopt a cautions approach going forward. Further rate cuts are possible depending how the inflation trajectory pans out and on further measures the government takes to bring down the fiscal deficit."
A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI
"In terms of guidance there maybe another 25 basis points cut in the repo rate in March, but the policy is finely balanced. There are upside risks to inflation and it is not a given that a rate cut will happen in March. It may happen in May policy. But from hereon we do not expect any more CRR cuts over the next six months, the central bank would rely on open market operations."
SRIRAM KHATTAR, SENIOR EXECUTIVE DIRECTOR, DLF, NEW DELHI
"The tangible benefits will only come in the medium term after about three to six months but it will immediately boost sentiment. Housing demand has more to do with sentiment so if that improves, demand will also improve."
J C SHARMA, MANAGING DIRECTOR, SOBHA DEVELOPERS, BANGALORE
"This is a good trigger. Because the real estate sector is rate sensitive the market believes that any rate cut will help push demand. From a customer's point of view this will improve liquidity and reduce the interest burden."
LAKSHMI IYER, SR VICE PRESIDENT, KOTAK MUTUAL FUND, MUMBAI
"CRR cuts means no immediate open market operations and markets are likely to remain rangebound. The (debt) markets have already factored-in the policy and hence nothing miraculous is expected. They will remain in a tight range and may be start easing as we head towards the next policy."
The 10-year benchmark bond yield dropped just 1 basis point from before the rate decision to 7.86 percent as a cut in the cash reserve ratio along with the repo rate dampened hopes for more open market operations.
The partially convertible rupee extended gains to 53.72/73 per dollar from 53.83 beforehand.
The benchmark 5-year swap rate edged down 3 bps to 7.14 percent while the 1-year rate dropped 6 bps to 7.53 percent from before the policy review.
The Sensex was up 0.2 percent from flat before the rate decision.
For special coverage of RBI policy review click http://in.reuters.com/subjects/rbi-policy-review
For full text of the statement click http://link.reuters.com/fet55t
- India's economy will pick up steam this year after its worst performance in a decade as a slew of reforms take hold and the central bank eases policy to spur growth, a Reuters poll found. The survey also showed inflation will remain high, preventing the RBI from cutting rates too aggressively, and that economic growth will not soon return to levels as strong as just few years ago.
- The economy will grow "no better than" 5.7 percent in the current fiscal year but will regain traction in 2013/2014, the finance minister told global investors in Hong Kong last Tuesday, committing to fiscal prudence in the budget and brushing off threats of a downgrade.
- New Delhi should consider the argument for higher taxes on the "very rich", Finance Minister P. Chidambaram said in comments likely to fuel speculation about steps he may take in next month's budget to boost tax flows and narrow a yawning fiscal gap.
- The RBI last week relaxed some of the rules for foreign institutional investors buying into domestic debt as part of the government's long-expected $10 billion increase in corporate and government debt limits.
- The government aims to include the bulk price of diesel fuel in its calculation of wholesale price inflation as early as February, two government officials with direct knowledge of the matter said, in a change that is seen adding to upward pressure on the headline inflation rate after New Delhi's move last week to deregulate prices.