Change in Stance by RBI Very Heartening: Expert

The Reserve Bank of India kept interest rates unchanged at 8.0 per cent on Tuesday as widely expected, staying focused on containing inflation while adopting a more dovish tone in response to the government's call for help to revive economic growth.

Here are comments of some experts on this development:

Sandeep Nanda, chief investment officer, Bharti AXA Life Insurance, Mumbai

The policy has come in line with market's expectations. There is no rate cut but guidance is definitely dovish. People will now expect rate cuts from February onwards. RBI has brought down its expectations to market's level. There can be more positive surprises expected given the way the commodity prices are behaving.

Arvind Chari, head of fixed income and alternatives, Quantum Advisors, Mumbai

We have maintained that the RBI will only move post certainty on growth policies and supply reforms in the budget. We thus expect the first rate cut to be immediately post-budget in the first half of March and it can be a 50 basis point cut.

Killol Pandya, senior fund manager-debt, LIC Nomura Mutual Fund

RBI's policy is very balanced and pragmatic. There should be no complaints from market participants. The policy is dovish relatively so there would be continued expectations of rate cuts in future. The trajectory would remain dovish but government's needs to do its part.

R.K. Gupta, managing director, Taurus Asset Management, New Delhi

This is what we were expecting. Probably rates may not be reduced before April 2015. Reducing 25 basis points is not going change anything in the corporate sector. If inflation continues to remain low, foreign currency reserves remain comfortable, current account deficit remains under control, probably you can expect a 50-75 basis point cut in April 2015, after the budget. RBI will take a very, very cautious approach.

Shakti Satapathy, fixed income strategist, AK Capital, Mumbai

Today's action is aimed at containing the medium-term inflationary pressure and is well in line with the RBI's sanctity towards its previous tone. However, the tone for today's policy seems softer on account of positive developments happening to the intermittent data points. The prolonged low price regime seen in international crude and the government's effort in containing the fiscal deficit would weigh positive in forthcoming policies of 2015 and might lead to a first rate cut in the first quarter of 2015.

Devendra Kumar Pant, chief economist and senior director, (head-public finance), India Ratings and Research

The policy has come in line with our expectations. There are high chances of a rate cut in Feb 2015. Decline in inflation has come mainly from falling crude oil prices. Oil prices will remain low but may not see a sharp fall next year. Food inflation may also rise due to summer pressure. Base-effect will keep inflation lower until December.

J. Venkatesan, equity fund manager, Sundaram Asset Management Company, Chennai

The central bank has made a strong dovish statement. Inflation is clearly trending downwards, and based on that the RBI has clearly stated that the monetary stance will be reviewed early next year.

If the interest rate is cut it would be sentimentally beneficial, but things will not pick up just because of rate cuts. A strong reforms push is needed to revive economic growth, that is where the cycle had got stuck.

A. Prasanna, economist, ICICI Securities Primary Dealership Ltd, Mumbai

This policy is as per expectation. The guidance is dovish which leads us to believe that there is a significant chance of policy easing by February subject to inflation and government's efforts to meet fiscal targets. At this point we'll go with 25 basis points. The bond market is running ahead, but there's more conviction about policy easing by February.

Kumar Rachapudi, senior rates strategist, ANZ, Singapore

The RBI assessing the risks to its January 2016 inflation forecast as 'balanced' - previously the risks were biased upside - is significant. In fact, the RBI said if the current inflation momentum and changes in inflationary expectations continue, a change in the monetary policy stance is likely early next year. Think this paves way for a rate cut in early 2015 unless global commodity prices aggressively reverse their fall. We like staying long Indian bonds here.

Sandeep Bagla, associate director, Trust Group

The change in stance by RBI is very heartening. The easing of commodity prices has meant that the central bank has room to cut rate by around 75 bps for the next full year. Market has tried to price in this possibility by rallying strongly. There's a good chance that the 10-year yield will fall to 7.90-7.95 in the immediate term.

R. Sivakumar, head of fixed income, Axis Asset Management, Mumbai

Clearly, a very dovish statement by the governor; they have acknowledged that inflation is treading expectations and that there is scope for monetary easing in early 2015. Markets like clarity and they are reading this as a signal that barring any surprises, a Feb 2015 rate cut looks likely.

Copyright: Thomson Reuters 2014