In a few hours, the RBI’s Monetary Policy Committee (MPC) will announce its decision on key policy rates. Given the prevailing economic slowdown and persistently low inflation, the committee headed by RBI Governor Shaktikanta Das is expected to cut repo rate by 25 bps for the fourth straight time. Currently, the benchmark repo rate stands at 5.75 per cent, but interest rates continue to be elevated as banks are refusing to revise rates lower.
While a 25 bps rate cut has been widely anticipated, markets are anxiously waiting for the policy commentary to determine the RBI’s policy stance and future rate revisions for the fiscal year.
Arvind Chari, Head, Fixed Income & Alternatives, Quantum Advisors:
Today, we are staring at a stubbornly low inflation and an economy which is slowing and definitely growing below the reported numbers and well below the MPC’s own estimate of 7 per cent for FY 20. The MPC has space to cut rates further given its mandate of 4 per cent headline CPI inflation but having already cut the repo rate by 75 bps from 6.5 per cent to 5.75 per cent over the last 3 meetings, how much more can the RBI guide from here on.
Kunal Shah, CFA, Fund Manager - Debt, Kotak Mahindra Life Insurance:
MPC members will take note of the drop in core inflation to 4 per cent reflecting slowdown in demand. The realised headline inflation in first 3 months is at 3 per cent, exactly in line with RBIs projections. In the ideal case, MPC could consider a 25 bps rate cut to support economic activity, however a larger size (front loaded) cut could be considered to give a fillip to already weak investment sentiments. The front loading of accommodation will push for faster transmission of lending rates; the revival in demand will act as a pre-cursor to private investments...
Shanti Ekambaram, president (consumer banking), Kotak Mahindra Bank:
The central bank is likely to cut the repo rate by 25 bps. It will be important to study the policy narrative to get a direction of likely future action by the RBI, liquidity measures, any other structural changes etc. Suffice it to say that inflation will be the central theme balanced with the need to boost growth.
Shishir Baijal, MD & Chairman, Knight Frank India:
A policy rate cut is definitely required to ease liquidity in the economy, specific measures need to be taken for infusing liquidity in the real estate sector. Unlike the financial market, the impact of a rate cut on the housing market is realised with a time lag and is in fact statistically insignificant in case of expected rate cuts. Keeping this in mind, directed measures such as reducing risk exposure of financial institutions to the real estate sector, and granting infrastructure status to the real estate sector in letter and spirit that will increase credit access, need to be taken by the Central bank. Such a concerted and co-ordinated effort will certainly oil the stalled economic machinery.
Suyash Choudhary, Head – Fixed Income, IDFC AMC:
The MPC is already easing via all the three tools at its disposal: guidance, liquidity, and rates. Indeed, this is for the first in recent memory that all three are being used in synchronicity. In particular, the role of liquidity is often under-appreciated, especially in context of bringing down term spreads at the front end of the curve. With the current local and global backdrop, and with obvious constraints on fiscal policy, it is reasonable to expect the current easing cycle to prolong. At this juncture we are comfortable expecting another 75 bps of rate cuts in this cycle, alongside provisioning of adequate positive liquidity.