MUMBAI (Reuters) - The RBI cut interest rates on Tuesday for the first time in three years by an unexpectedly sharp 50 basis points to give a boost to flagging economic growth but warned that there is limited scope for further rate cuts.
The Reserve Bank of India cut its policy repo rate to 8.00 percent, compared with expectations for a 25 basis point cut in a Reuters poll.
(Read main story, RBI cuts repo rate, click here)
RAJEEV MALIK, ECONOMIST, CLSA, SINGAPORE
"The rate cut is bigger than expected, and the guidance is important that RBI is indicating that there is limit for further rate cut expectation, and I think they are pretty much done with further rate cuts this year."
SIDDHARTHA ROY, ECONOMIC ADVISER, TATA GROUP, MUMBAI
"The 50 bps point rate cut is most welcome. But going ahead, two things are crucial. First we need more rate cuts to the tune of around 150 bps in order to make the real interest rates realistic. Then, the fiscal side needs to be controlled to prevent crowding out of the private sector and available liquidity is well distributed."
NITESH RANJAN, CHIEF ECONOMIST, UNION BANK, MUMBAI
"A very bold step indicating RBI's change in stance. This will help in arresting growth going below the trend level. One can expect the cost of fund and capital going down, which will encourage consumption and investment demand.
"Given the inflationary risks, as mentioned in its (RBI's) macro report, I think the next rate action may wait till first quarter review in July, by when more clear trend on growth and inflation will emerge."
VIVEK RAJPAL, INDIA RATE STRATEGIST, NOMURA, MUMBAI
"The RBI seems to have largely front-loaded its rate cut plan and the language and outlook is not as dovish as should be with a 50 bps rate reduction.
"The RBI has indicated its willingness to cut CRR further in case liquidity worsens but as far as further rate cuts are concerned the hurdle seems higher and we might see it only at next quarterly policy review."
GAURAV KAPUR, SENIOR ECONOMIST, ROYAL BANK OF SCOTLAND NV, MUMBAI
"I think perhaps another 25 basis points in the first half of this year is likely. I think the room for further cuts is limited. The actual action is to support growth without taking eyes off inflation.
"One comfort factor for the RBI is core inflation, which has fallen below 5 percent, which shows the demand side pressures are easing."
DEVEN CHOKSEY, MANAGING DIRECTOR, K R CHOKSEY SECURITIES, MUMBAI
"The RBI has taken a practical approach. This should help banks improve credit offtake, bring down pressure on non-performing assets and even the impact on banks' bond portfolios would be favourable.
"Going forward one should expect some CRR cuts."
SUBBARAO AMARTHALURU, GROUP CHIEF FINANCIAL OFFICER, GMR INFRASTRUCTURE LTD, MUMBAI
"This is a music to our ears, we have been waiting to hear such kind of a move for a long time. On the whole it is a good move and will fuel growth, provided inflation stays tamed. I think this is the beginning."
(Highlights of RBI's rate move, click here)
SAUGATA BHATTACHARYA, ECONOMIST, AXIS BANK, MUMBAI
"It is a positive signal despite the hawkish stance. Given the RBI's rate action today and its projection of economic indicators, I think they will cut the repo rate by a total of 100 basis points in fiscal 2012/13."
DEVENDRA PANT, DIRECTOR - PUBLIC FINANCE, FITCH RATINGS, NEW DELHI
"It is apparent that the central bank's main concern is more on the growth side rather than inflation, and this surprise cut is certainly in order to give a fillip or a boost to growth. But it is aggressive compared to what the market was expecting.
"The government has made it clear that growth should not slump below what level is at now, and there was a need to ease monetary policy.
"We are going to see bonds react positively and yields will fall, which will benefit pricing for the national borrowing and debt."
D.S. KULKARNI, CHAIRMAN, DS KULKARNI DEVELOPERS, PUNE
"There won't be much positive impact on real estate sector where pricing of houses are so high that cut in interest rates won't make homes affordable ... hence, sales will remain muted."
JAGANNADHAM THUNUGUNTLA, HEAD OF RESEARCH, SMC GLOBAL SECURITIES, NEW DELHI
"The move is quite aggressive than what some market people were expecting. Now, we will have to see if the banks will pass on this cut as aggressively to industry. The central bank seems to be fairly comfortable with the liquidity situation, and is now shifting towards providing some stimulus to the economy."
RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI
"I think this is a very prudent policy, and this will definitely pressurise banks to revisit lending rates. RBI has front-loaded rate cuts. We will see banks lowering the borrowing costs either by adjusting spreads or by reducing BPLR (Benchmark Prime Lending Rates) and base rate.
"I am not seeing significant reduction in bond yields and the 10-year can be around 8.25 percent, because they also have hiked the limit on MSF (Marginal Standing Facility) and that will provide liquidity comfort."
R.K. GUPTA, MANAGING DIRECTOR, TAURUS MUTUAL FUND, NEW DELHI
"I see it (the interest rate cut) as more of a sentiment booster ... June-quarter results of companies will see some benefit. The rate cut should help interest rate-sensitive sectors like autos and real estate."
DARIUSZ KOWALCZYK, SENIOR ECONOMIST AND STRATEGIST, CREDIT AGRICOLE CIB, HONG KONG
"The reduction was bigger than expected and shows a strong shift of focus towards supporting growth, whose stabilization was described as a goal of the easing.
"The RBI said that rate cut room is limited, and we see at least 25 bps more this year."
NIRAV DALAL, PRESIDENT AND MANAGING DIRECTOR, DEBT CAPITAL MARKETS, YES BANK, MUMBAI:
"It is a little bit of a surprise. When you look at it objectively, 25 basis points would have been a token. I think rate cut expectation will remain very, very contained and a lot will depend on growth and inflation numbers. Based on the current and evolving environment, to expect significant rate cuts in the remaining year might not be possible.
"I would expect the 10-year yield to stabilise somewhere in 8.25-8.50 percent range in the near term."
D.K. AGGARWAL CHAIRMAN, SMC INVESTMENTS AND ADVISORS, MUMBAI
"By shifting stance towards favoring growth and cutting repo rate by 50 basis points at one go, the RBI has certainly come up with the trick that is required at the moment. However, risks to inflation discussed in the macroeconomic report are some of the concerns that may act as a hurdle in the course of loosening of monetary policy."
JONATHAN CAVENAGH, FX STRATEGIST, WESTPAC, SINGAPORE
"RBI decision - more than expected, market was looking for 25 bps cut. INR has rallied initially (due to greater support to growth from RBI, Indian equities have gone bid) but the comment that further room to cut rates is limited may limit INR gains.
"Yesterday we had an upside surprise on inflation data and positive revisions to previous months, which will be very much at the forefront of RBI thinking in terms of determining how far they should cut rates."
The Sensex extended gains to more than 1 percent after the rate cut.
Bond yields and overnight indexed swap rates fell after the policy review.
- The wholesale price index (WPI), India's main inflation indicator, rose an annual 6.89 percent in March, higher than 6.70 percent rise estimated by analysts. Higher food prices offset a softening manufacturing data, thereby pushing the number above consensus.
- The Reserve Bank of India cut the cash reserve ratio requirement for banks by 75 basis points to 4.75 percent on March 9, sooner and more sharply than expected to ease tight liquidity. Before this it had cut the CRR by 50 basis points in January.
- Production at factories, mines and utilities in February grew at a slower-than-expected pace of 4.11 percent, below the 6.6 percent estimated by analysts, weighed down by a contraction in output of consumer durable goods.
- Economic growth slowed to 6.1 percent in the three months to December. The government has forecast growth in the fiscal year that ended on March 31 to dip below 7 percent for the first time in three years.
- India's trade deficit is seen widening to $185 billion in 2011/12 on higher crude import bill, which may worsen the country's current account balance and further weaken the rupee.
(Compiled by treasury team in MUMBAI; Editing by Ranjit Gangadharan)
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