Mumbai: Bankers on Friday termed the RBI’s unexpected decision to keep the policy rates unchanged as a risky move since the market was expecting a rate hike to save the rupee that has been on a freefall and other asset classes which has been also been impact due to this. “This is a risky move by the RBI since the market was positioned for a rate hike, purely as a rupee defence,” HDFC Bank chief economist Abheek Barua said.
He said in the absence of rate hike, the currency and other asset markets could see sharper corrections. “A narrow focus on inflation targets perhaps is not desirable in the middle of a financial crisis. Change in the policy stance suggests that the rate hike could still come in the coming months,” Barua said. State Bank chairman Rajnish Kumar said the RBI decision to keep the policy rate unchanged while changing the stance seems to be “dictated purely by a benign inflation trajectory and considering the rising uncertainty in global markets, possible weakening in global trade and financial stability considerations”.
Indian Banks Association chairman Sunil Mehta said the RBI has pleasantly surprised the market by keeping the repo rate unchanged at 6.5 per cent. In the policy, the apex bank has further reduced the inflation projection for the second quarter of FY19 to 4 per cent as against the previous forecast of 4.6 per cent for the second half of the fiscal. He said the inflation trajectory is expected to go up due to the recent announcement of the government for ensuring better prices for farmers, oil prices, global uncertainties and fiscal slippages at the Central or state level.
“The central bank exudes confidence in managing inflation and reposes confidence on economic growth. It will improve the market confidence and will also credit growth in the festive season,” Mehta said. ICICI Bank’s global markets group head B Prasanna said RBI has acknowledged the upside risks to inflation and consequently changed the stance to calibrated tightening. “This is an indication that the rate hike cycle will be lengthier and the hikes might not necessarily be front loaded,” Prasanna said.
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