RBI stance disappoints many

The move to hold rates by the Apex Bank on Wednesday has disappointed the market watchers and analysts. Despite repeated pleas by the industry captains for rate cut and a recent pitch made by Finance Minister Arun Jaitley, the Reserve Bank of India (RBI) decided against any such move in its second bimonthly policy review.

The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India, headed by Governor Urjit Patel, kept the short-term lending rate, called repo rate, unchanged at 6.25% on pretext of keeping CPI inflation at 4% on a durable basis.  The RBI had last changed its repo rate in October 2016.

According to the latest data available with RBI, none of the sectors showed positive credit growth, save food credit. While the gross bank credit declined by 3.5% in April this year, the only exception, food credit, grew by 23.3%. The gross credits to the shipping declined 37.3%, followed by Non-Banking Financial Companies (10.9%).

Last week, India lost the tag of fastest growing economy after the GDP growth slowed to 6.1% — lower than expected during the January-March period.

“They have not accounted for negative credit growth. There was no reason for RBI to hold on to the rates,” Rajan Govil co-founder of Marketnomix told DH.

Some other analysts found silverlining in the 50 basis points cut in Statutory Liquidity Rate (SLR).

“While the Repo rate was kept unchanged, on a positive side the RBI has cut the SLR requirement by 50 bps which should allow more liquidity at the end of banks,” Siddharth Purohit, Senior Equity Research Analyst- Banking, Angel Broking said.

In another key announcement, the RBI has reduced the risk weightage on home loans above Rs 75 lakhs to 50% from earlier 75% and in addition to this, the standard asset provisioning on home loans has been reduced to 25 bps from 40 bps.

“With tamed inflation, uptick in industry sentiments and a good monsoon forecast the need of the hour is to embrace a monetary policy that propels growth,” Shishir Baijal, Chairman and Managing Director, Knight Frank India — a real estate advisory firm said. Commercial real estate, in the month of April, saw a decline of 1.9% in gross bank credit.

Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities expects a case for a rate cut will be strengthened with downside surprise to the RBI’s 2HFY18 inflation expectations. “While it maintains a cautious note, it clearly expects inflation to glide down towards the 4% mark by March 2018 based on current dynamics,” he said.