Analysts view RBI’s comments ‘less dovish’ as it says inflation risks remain and this ‘will influence both timing and magnitude of future rate actions’.
VIVEK RAJPAL, INDIA RATE STRATEGIST, NOMURA, MUMBAI
“RBI is not as dovish as expected. It has rather sounded cautious on inflation. Though, in their guidance, they have hinted that future rate actions will be towards lowering the rates
“RBI, being not so explicitly dovish, may lead to a rise in OIS rates, which in our view, will be a receiving opportunity, especially in the front end, as liquidity conditions will ease in April and the rate cut cycle beginning in April policy remains a high probability”
INDRANIL PAN, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI
“A status quo policy is what we had expected and that is what it is. The statement clearly highlights the risk to inflation in the form of crude prices, suppressed inflation and the likely rupee depreciation. Clearly the statement also highlights the fiscal deficit being an added source of risk for inflationary pressures”
SIDDHARTHA ROY, ECONOMIC ADVISOR, TATA GROUP, MUMBAI
“The RBI should cut interest rates in April as core inflation is showing signs of abating and the investment cycle is already at its bottom. So unless the cycle is boosted economy cannot grow.
“Fiscal consolidation is also important because if liquidity being injected through the CRR cut is borrowed by the government, the private sector will keep getting crowded out and as it is cost of money is very high”
RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA
“It would not have made sense to cut policy rates before the Budget because it will give a roadmap on fiscal consolidation, and that will be a relevant policy contributor
“Inflation has been emphasised in the policy because the complete pass through of global oil prices has not happened. Going by experience if the Budget turns out to be populist, then we may see policy staying more accommodative, and which will keep inflation structurally high.
We’re seeing sentiment induced move in the 10-year yield. It may ease to around 8.15 percent by March-end”
DARIUSZ KOWALCZYK, SENIOR ECONOMIST AND STRATEGIST, CREDIT AGRICOLE CIB, HONG KONG
“RBI statement details sound less (although still) dovish, with no timeframe for rate cut and a lot of focus on upside risks to inflation. This may delay further recovery of the INR and expected future fall in INR OIS”
ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI
“The statement is not dovish as expected. Growth slowdown has been acknowledged but no red flags has been raised. Inflation on the other hand has been stated to have upside risks especially with higher oil prices. Suppressed inflation has been highlighted and it notes that price pressures at retail levels still remain significant
“This statement on inflation will influence both the timing and magnitude of future rate actions and shows that even if RBI starts reducing rate in its next meeting (April 17), the magnitude of rate cut is unlikely to be large in FY13”
ASHISH VAIDYA, EXECUTIVE DIRECTOR AND HEAD OF INTEREST RATES, UBS, MUMBAI
“The RBI’s tone is uncertain. The fact is, the RBI is cognizant of inflationary pressures, and the eventual pass-through of global oil prices, if and when it happens. There are political pressures too. The pressure will be seen on the rupee.
“To my mind, I think the budget will project the fiscal deficit at 5 percent of GDP
“The bond market will temporarily bounce to 8.30 percent, and then get sold off. I maintain my projection of the 10-year yield to be around 8.47% by March-end. We are likely to see huge supply of bonds, and probably without the OMOs (open-market operations) because liquidity deficit should start getting adequate
GAJENDRA NAGPAL, CEO, UNICON FINANCIAL INTERMEDIARIES, NEW DELHI
“I think the RBI would wait for little longer (before starting to reduce rates). Obviously they had done the CRR cut only recently. I think that’s strong enough for the markets to move on. To that extent, I think it would be a little ambitious if you start to expect a rate cut. It depends on how the prices and inflation play out”
A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI
“The guidance is surprising in that RBI seems to be more worried about inflation after the headline and core inflation have come down. The reasons cited such as high oil prices and suppressed inflation are likely to remain a concern in the quarters ahead also. Based on Thursday’s statement, one may conclude that RBI will never be able to cut rates. However. I believe that the central bank will cut rates in April; presumably tomorrow’s budget will pave the way for a change in RBI’s thinking”
PRADEEP MADHAV, MANAGING DIRECTOR, STCI PRIMARY DEALER, MUMBAI
“Inflation is still a risk as pointed out by RBI. The uncertain geopolitical situation is also a danger, especially for crude prices. A full pass-through of the past rise in global oil prices too has not happened in India, so it is wise to adopt a wait-and-watch approach on rates.
But that said, if most things remain constant, I still think there is a fair chance of a rate cut in April because by then we will have an idea of the fiscal deficit situation. A cut then will also help in pushing the borrowing programme for 2012/13 that is likely to be front-loaded”
NIRAV DALAL, PRESIDENT AND MANAGING DIRECTOR, DEBT, CAPITAL MARKETS, YES BANK, MUMBAI
“A lot now depends upon how growth in the global economy shapes up. If the world economy continues to do well as recent data points suggest and consequently if commodity prices stay where they are or rise further, then the April rate cut from RBI might not be a done thing”