RBI surprises market with a rate cut; what Dalal Street experts say

The Reserve Bank of India (RBI) surprised Dalal Street by slashing the repurchase (repo) rate by 25 basis points to 6.25 per cent against the market expectations of a status-quo on the interest rate. However, the shift in policy stance to 'neutral' from 'calibrated tightening' was in-line with the expectations.

Experts see another rate cut in the calendar year 2019 as the RBI governor Shaktikanta Das clearly stated to focus on the economic growth with the headline inflation projected to remain soft in the near-term.

Four of six members of the Monetary Policy Committee (MPC), including Das, voted to cut the rates. Deputy Governor Viral Acharya and Professor Chetan Ghate of the Indian Statistical Institute voted against it, although all six members were in favour of a change in the stance.

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We have compiled what market experts have to say on the RBI's sixth bi-monthly policy review:

Amar Ambani, President & Head of Research, YES Securities

With an extremely benign inflation reading and limited risks to upside and with the rupee having stabilised, it was clear to us that the time is right to provide the much-needed support to the economic growth. This could also be gauged from the RBI policy announcement, where members unanimously voted in favour of changing their policy stance to 'neutral' from that of 'calibrated tightening'. To our mind, it was only a matter of time whether rates were cut in today's meeting or during the next policy meet. We welcome this decision and believe that the present situation opens up doors for more rate cut action in the year 2019.

Dhiraj Relli, MD & CEO, HDFC Securities

The RBI MPC has delighted the market participants by changing stance to neutral and cutting repo rate by 25 bps. Q3FY20 inflation expectation cut to 3.9 per cent means some more rate cuts can be expected in the course of the next few meetings. While bond yields are yet to respond to the rate cut, we think they may start to fall materially when foreign portfolio investors (FPIs) revise their short-term view on India (overcoming their fears on fiscal situation). Equity markets could rise some more, welcoming an attempt to address recent issues in the credit markets, ultimately leading to higher growth.

ALSO READ: RBI cuts inflation forecast to 2.8 pc for Q419; 3.2-3.4 pc for H1FY20

Abheek Barua, Chief Economist, HDFC Bank

RBI following its own rule--both recent history and forward guidance made a compelling case for the rate cut. Going by the guidance, room for further rate cut is there. Growth is back in the RBI's vocabulary, not as a risk to price stability but as a legitimate target. Fiscal concerns and the inflationary consequences seem to be underplayed.

Mustafa Nadeem, CEO, Epic Research

The rate cut means a lot for the market as it has come after Budget 2019. This is a much-needed breather for market and specifically interest rate sensitive sectors like housing and automobile. To an extent, it will try to settle the dust of recent liquidity crunch that happened post the IL&FS fiasco. Markets are likely to take it in a positive note, but with the recent run-up to 11,100, we believe it may be ripe for traders to take some profit. From a medium-term perspective, market has always reacted positively to a rate cut. Since we are in an environment where RBI is now neutral with a focus on economic growth and a tab on inflation, we may attract long term money that can move the market. This is a positive event for the market but we need to take into account that we have Lok Sabha election in the next three months.

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VK Vijaykumar, Chief Investment Strategist, Geojit Financial Services

"The unusual turnaround in RBI's monetary policy from calibrated tightening to rate cut stems from the benign inflation, both current and expected. Since the RBI does not expect the headline inflation to cross 4 per cent in CY2019, one can realistically expect one more rate cut this calendar year. It appears since the RBI believes that the "pathway of inflation has moved down substantially" the central bank is shifting its immediate goal to stimulating the economy with rate cuts. This is appropriate in the context of the slowing investment in the economy and since crude can be expected to remain soft in the context of the global growth and trade slowdown.

The rate cut is good news from the capital markets perspective since it can reinforce the resilience seen in the key benchmark indices.

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