Market experts cheer RBI, expect more rate cuts

Last Updated: Fri, Apr 05, 2019 10:26 hrs
Sensex touches 30,000-mark

New Delhi: The market has cheered the Reserve Bank of India (RBI)'s second successive cut in repo rate to support growth while keeping a close watch on inflation and hopes alive for more rate cuts in the days ahead.

B. Prasanna, Head - Global Markets Group of ICICI Bank said that the decision of the RBI's Monetary Policy Committee (MPC) to cut the repo rate by 25 bps while keeping the stance neutral is a prudent and laudable one.

"It has successfully managed to keep its stance flexible to react to the need to support growth even as it keeps a close watch on the upside concerns on inflation from rising oil and food prices going ahead.

"However, the sharp downward revisions in the consumer price index (CPI) trajectory for FY2020 and expectations of benign inflation till FY2021 as well as the downward revisions in growth forecasts for FY2020 do give the MPC more room to support growth if required," Prasanna viewed.

Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stock Brokers, said this is a "baby step, not end of the road".

"RBI's baby step of 25 bps rate cut and continuation of neutral policy stance are in line with expectation. If RBI's forecasts on growth and inflation pan out, another 25-50 bps rate cut is likely in 2019. The measures declared today are positive for equity market, especially banks and NBFCs."

On the outlook, he said that RBI's decision both on monetary rate and stance are on expected lines. "If RBI's forecasts on inflation and growth pan out, we expect 25-50 bps rate cut within 2019. We feel that RBI's decision to cut rates in instalments of 25 bps is in the right direction as it allows to watch out for incoming data."

Kunal Shah, CFA, Fund Manager - Debt, Kotak Mahindra Life Insurance Co, said MPC members have decided to cut repo rate by 25 bps to 6 per cent as expected by market participants, as inflation and growth prints were lower than earlier expectations.

If monsoon performance is not bad and food prices remain low, bond markets will start pricing in more easing and yields will move lower. One of the important factors for markets will be election outcome as it will have a bearing on the fiscal stance.

Mihir Vora - Director and Chief Investment Officer, Max Life Insurance, feels that the decision comes in the backdrop of slowing global and domestic growth. Global central banks are already responding with dovish policies which is a shift from a stance a few months ago, as inflation has remained low.

Domestically, inflation has remained below the RBI projections and is expected to remain below 4 per cent target for coming quarters while growth continues to slow as witnessed by some of lead indicators like auto and FMCG sales. A significant portion of participants were also expecting a change in stance from neutral to accommodative.

"We expect one more rate cut in the current financial year and a shift in stance to accommodative if growth slowdown persists. Oil and other commodity prices and the monsoon remain key variables to monitor," he said.

Lakshmi Iyer, CIO (Debt) and Head - Products, Kotak Mahindra Asset Management Company, feels the benchmark repo rate cut is broadly in line with the expectations. Another key factor influencing markets is the liquidity in the banking system.




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