RBI will take a break from easing: Analysts

Reserve Bank of India chief Raghuram Rajan may have surprised most of the pundits by announcing a repo rate cut of 50 basis points (BPS) in the recent bimonthly monetary policy, and so many of the analysts and experts believe that this could be the end of monetary easing at least for a while now.

“Having delivered a cumulative 125 BPS of rate cuts already, we now expect the RBI to stand pat. We expect the underlying inflation trend to stabilise at around 5-5.5 per cent (with no further sustained disinflation); a gradual growth recovery is already underway; and inflation expectations are still high and backward-looking. As such, we expect the RBI to remain on a prolonged hold through end-2016,” Nomura said in a note post the policy.
SBI’s Soumya Kanti Ghosh, however, believes that good news in terms of rates is likely to continue from RBI going forward in the current fiscal itself.

“Given that RBI has reduced targets for both growth and inflation, it is expected that it will further provide stimulus in the form of more rate cuts in the early part of 2016,” Soumya Kanti Ghosh, chief economic adviser and GM (Economic Research Department), SBI, said.

India Ratings also believes that RBI is done as far as policy actions are concerned for FY16 and will now focus on transmission of the rates.

By calling the 50 BPS repo rate cut a front-loaded policy action, in India Rating’s view, RBI has nearly shut the door on further rate cuts in FY16. Nevertheless, Ind-Ra believes that if conditions permit, RBI’s policy stance will continue to be accommodative. In the near term, however, the focus of RBI will be to work with the government to ensure that roadblocks to banks for better transmission of bulk of the cumulative 125 BPS cut in policy rates are removed.