India Inc welcomes RBI rate cut, expects more in future

The Indian industry has welcomed the 25 basis points cut in key rates by the Reserve Bank of India (RBI), saying the move reinforces the perception that the government and the central bank are working to take the economy to a higher pedestal of growth.

In the monetary policy review on Tuesday, RBI Governor Raghuram Rajan revised the repo rate to 7.25 per cent and reverse repo rate to 6.25 per cent. Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) were, however, left unchanged at 4 per cent and 21.5 per cent, respectively.

RBI has now effected a 75 basis points cut in key rates so far in 2015.

With the most recent cut, Rajan is back where he began. In September 2013, when he took over as the governor of RBI, the repo rate was 7.25 per cent.
 
He hiked the repo rate to 8 per cent by February 2014 to signal RBI's inflation fighting credentials and its move to a CPI-inflation targeting driven monetary policy framework. As the consumer price inflation fell more than anticipated in the last year, he has front-loaded the rate cuts to bring the repo rate back to 7.25 per cent.

Arundhati Bhattacharya, Chairman, State bank of India:
"The decision to cut repo rate is welcome and timely. With credit demand expected to perk up, we anticipate the rate cut will transmit through the banking system sooner than later. With monsoon forecast going a little awry and the RBI upping its inflation projections for March FY16, the government should now push for more public infrastructure spends that would support growth in the near term and create more jobs."

VS Parthasarathy, Group CFO, Mahindra & Mahindra:
"The RBI was frugal in delivering a 25 basis points cut in Repo Rate with an outlook that further action will hinge on evolving data points. While we respect RBI's action, we do expect more is in store for the sake of growth, which is still fragile. The widespread prognosis of monetary policy experts, based on Monday's policy, is that the RBI will be in  pause mode on rate action from now on until 2016. However, I am an optimist and truly hope that the great Indian orchestra with the government of India's policy actions, fiscal rectitude, external competitiveness, benign Current Account will be completed by RBI with its high notes of positive rate actions to create a symphony for progress. For investment to gather speed and feed into demand and output gap to reduce, competitive interest rates are key enablers and it is well known that Indian real interest rates are well above the desired spread of 150-200 basis points, leaving room for reduction of at least 50 basis points more."

Chanda Kochhar, managing director and chief executive officer, ICICI Bank:
"The rate cut is a welcome step considering the need to further improve domestic demand and revive credit growth. The uncertainties cited in the policy statement present a pragmatic evaluation of economic conditions warranting a guarded approach, particularly with regard to risks to inflation and impact of monsoon. In summary, the policy stance is in alignment with the current economic conditions and the issues that require structural policy changes."

Jyotsna Suri, President, FICCI:
"RBI's decision to cut repo rate by 25 basis points is a welcome move. However, given the current situation, the Central Bank could have considered a deeper cut in repo rate by 50 basis points. As RBI's own prognosis shows, industrial growth has been recovering, albeit unevenly. The slowdown in consumption demand and the still weak investment cycle has taken a toll on the industrial sector. The same is also reflected in the low credit off take and the sluggish quarterly corporate results announced recently."

Rana Kapoor, Managing director and Chief Executive Officer, YES Bank:
"The RBI has delivered the anticipated 25 bps reduction in the repo rate, with a forward guidance that carries a 'neutral bias'. The nuanced stance of front loading the rate action has been driven by the need to spur the lending and investment cycles. With domestic real interest rates having risen over the last one year and being amongst the highest in comparison to global peers currently, I think there is scope to cut the nominal policy rate even further."

Vikaas Sachdeva, Chief Executive Officer, Edelweiss Asset Management:
"Existing investors should remain invested into longer term funds if they can stay for another 12 months as currently long term yields are trading at an attractive level over the repo rate. New investor with an investment horizon of 12-18 months can also start adding duration to their portfolio by investing into long term income and gilt funds. For a risk averse investor with an investment horizon upto 6 months, short term income funds offers good opportunity as liquidity is expected to ease going forward which will be reflected in short term rates going down."

Murthy Nagarajan, Head-Fixed Income, Quantum AMC:
"After the rate cut, we believe the RBI is likely on a long pause till at least the first quarter of 2016. First, some forecasters, notably the IMD, predict a below-normal southwest monsoon. Astute food management is needed to mitigate possible inflationary effects. Second, crude prices have been firming amidst considerable volatility, and geo-political risks are ever present. Third, volatility in the external environment could impact inflation. Therefore, a conservative strategy would be to wait, especially for more certainty on both the monsoon outturn as well as the effects of government responses if it turns out to be weak."

Ritesh Jain, Chief Investment Officer, TATA Asset Management:
"Over the medium term, we believe the inflation would continue to come down, driven by continued thrust on policy reforms as well as active measures by government to control food supplies to counter potential weak monsoon. This would create space for monetary policy easing. It would take 3-6 months of time for risks as highlighted by RBI to play out, and hence we expect RBI to give another rate cut in last quarter of this financial year. In the interim, we expect markets to remain range bound with negative bias in near term, but would gradually move towards positive side as risks unfold in the second half of 2015-16."

NM Gattu, CFO, DB Realty:
"RBI has slashed 25 basis points and this is in the right direction although not exactly as per the right expectations of the markets at large. Any rate cut will ease the EMI burden on the existing as well as new buyers and this will definitely improve the general demand and latent demand as well for housing. In the past few years, there was not even a signal from RBI that interest rates will go down and that has had a substantial impact on the decision making of the potential home buyers. The current rate cut is only a positive indication that if macro factors sustain the current levels specifically the inflation, further rate cuts will follow. This ray of hope after 3 cuts in the recent past should propel the demand significantly."

Kunal Shah, Fund Manager, Debt, Kotak Mahindra Old Mutual Life Insurance:
"We believe RBI can ease rate by more 25 basis points in the current fiscal year if monsoon performance is satisfactory without creating spikes in food prices. Passing of land & GST bill will also pave the way for more easing."

Nirakar Pradhan, Chief Investment Officer, Future Generali Life Insurance
"We believe, the rate is a positive development as the monetary measures will complement various fiscal measures being undertaken by the government to boost growth, recover the investment cycle and improve the corporate earnings profile. However, the immediate reaction from both the bond and stock markets was negative as further monetary easing could be limited due to risks coming from poor monsoon, high crude oil price and external volatilities."