Mumbai : RBI Governor Urjit Patel Wednesday said inflation is expected to rise from record lows even as the central bank opted for a cut in key lending rate to a 6.5-year low “to reinvigorate private investment” and resolve the issue of mounting bad loans amid weak corporate balance sheets. The 0.25 per cent lowering of the repo rate to 6 per cent comes after a 10-month pause and is the second since Patel took over last September. Patel had last cut the key rate by 0.25 per cent in his first policy review last October, which also was the first decided by a Monetary Policy Committee (MPC).
“Recognising that inflation is expected to rise from the current lows (1.54 per cent in June) over the rest of the year, the MPC persevered with the neutral stance,” Patel told reporters at the customary post-policy presser here. “Government and RBI are working in close coordination to resolve large stressed corporate borrowers and recapitalise PSBs within the fiscal deficit target,” he added. Eventually, he said, these efforts should help restart credit flows to the productive sectors once demand revives. On divergences in the policy document and action as also in the divergent views of the MPC members, Patel said, “The MPC decision is consistent with the June neutral stance in consonance with the objective of achieving the medium-term target for consumer price index inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. “Why individual members changed their minds from June, I think the resolution itself on balance, very comfortably shows why we went for a 25 bps cut. Compared to the status quo in June, we had more datapoints, some uncertainty (on Central HRA impact and smooth GST rollout) has been resolved and there has been a substantial reduction in inflation, excluding food and fuel.”
RBI Deputy governor Viral B Acharya chipped in saying that addressing the twin balance sheets problem remains the RBI’s top priority at the moment as this will help reinvigorate private investments. He said: “Investment slowdown in our assessment is significantly rooted in the resulting debt overhang for this twin balance sheet issues. With the NPA clean-up currently underway, we are striving to meet in near future an important pre-requisite for effective transmission of the monetary policy, namely robust health of balance sheets in the financial and real sectors.” Stating that one of the biggest uncertainties has been resolved with the smooth GST rollout and central HRA payout, Patel said including this the projection still brings us close to 4 per cent inflation and since this is a statistical exercise it is right time for us to net that out.
Reactions
Focus on affordable housing is welcome step: ASSOCHAM
New Delhi: The RBI’s decision to cut the policy interest rates by 25 basis points is on the expected lines as the central bank continues to remain cautious with regards to inflation, but what is equally significant is that it has focused on the serious problem of “twin balance sheets” which is one of the major road blocks for reviving private sector investment, said ASSOCHAM Secretary General D S Rawat.
Rate cut to boost sentiment: FICCI
New Delhi: Commenting on the monetary policy statement, Pankaj Patel, President of FICCI, said “The 0.25% cut in repo rate is a welcome move. The current situation, however, warranted a steeper cut of 50 basis points in the repo rate. The private investment cycle remains weak and the reduction in the rate will be an investment sentiment booster.
Rate cut to make credit market more efficient: Dena Bank
Mumbai: The ‘window of opportunity’ has been encashed by the RBI and as per market expectations; the central bank has reduced the key policy rates by 0.25 per cent, Chairman & Managing Director of Dena Bank, Ashwani Kumar said. The monetary policy statement is a realistic assessment of the prevailing macroeconomic situation. This is a positive step as growth has been moderating and inflation is at historic low, he added.
Policy review is well-timed and justified: Renault India
With the macro-economic headwinds like the retail and wholesale inflation at an all-time low, current account deficit under control, a rate cut by 25 basis points by the RBI in its third bi-monthly monetary policy review is well-timed and justified, Country CEO & Managing Director, Renault India Operations, Sumit Sawhney said. “The rate cut would give a fillip to the market sentiment as the Indian stocks are trading at a record high”.
More rate cut likely in future: YES Bank
Resumption of easing cycle with RBI’s calibrated 0.25% rate cut after a hiatus of 9-months is a welcome move, Managing Director and Chief Executive Officer of YES Bank, Rana Kapoor said. “The reduction clearly acknowledges downside to inflation pressures. India’s inflation has undergone a structural shift, with the emergence of ‘new normal’ at lower levels.
A growth stimulating move by RBI: BoI
Considering the present scenario, the time was most opportune for a rate cut, Managing Director and Chief Executive Officer of Bank of India, D.B. Mohapatra said. “GVA growth for FY18 has been kept unchanged at 7.3 per cent which will be supported by this rate cut. Inclusion of excess reserves with foreign central banks as part of LCR will help banks having excess reserves with foreign central banks”.
