INSUBCONTINENT EXCLUSIVE:
NEW DELHI: Mindful of simmering inflation, the Reserve Bank on Wednesday made its intention clear and raised interest rates by 25 basis
points for the second straight meeting.
The central bank, however, retained its 'neutral' stance as it looked to keep a firm grip on
inflation, but at the same time not choke growth.
The RBI's Monetary Policy Committee (MPC) raised the repo rate by 25 bps to 6.50 per
It is the first time since October 2013 that the rate has been increased at consecutive policy meetings.
The MPC took note of rise in CPI
inflation for the third straight month in June
It saw elevated oil prices and trade protectionism posing grave risk to global growth
The MPC also cautioned that any fiscal slippage at the Centre and states may crowd out private investment
Here is how experts reacted to the latest benchmark rate hike by the central bank.
Abheek Barua, Chief Economist, HDFC BankAs I said it was
I still do not think there is a compelling case for raising rates
Clearly, there are risks and the RBI should be forward looking
I felt that the RBI could give the market some more space to breathe, but if they want to be as pro-active as possible on future inflation
risks, then this is a rational call to make and perhaps what will happen after this is that the market will price in a scenario where things
are sort of done and dusted and there might be a long pause and there might not be rate hikes going forward
So given this it was just a question of timing
I did believe that the rate hike would be there some time down the road
Nilesh Shah, MD, Kotak AMCClearly, the stance is more about the future and where RBI indirectly is indicating that drop in inflation
In our opinion, 5 per cent number was the peak and due to base effect and good monsoon from here onwards, the prices will come down
Obviously, it is subject to MSP revisions which will get impacted and the two hikes are function of the past inflation number
The trajectory of inflation has been revised from 4.7 per cent for second half to 4.8 per cent, but the last two numbers were above that
trajectory, around 5 per cent
So my guess is that hikes are reflective of past inflation and neutral stance to some extent is reflective of potential future
trajectory.
Mythili Bhusnurmath, Consulting Editor, ETNowIt was not very surprising given that the RBI is an inflation hawk, and also
because as I said in a democracy looking forward for monetary policy, a rate hike was very much on the cards
But we will have to see whether the stance changes because that might just might be a bit of an overkill
Of course, there would be a contradiction if it keeps stance neutral and a rate hike, but the rate hike I think is very much warranted and I
think for once the RBI has called it right.
Sujan Hajra, Chief Economist, Anand Rathi Financial ServicesWe felt that RBI would wait for
another policy meeting before taking the decision to hike rate
resolve to stay ahead of the curve and rather err on the side of caution, (3) sharp hike in kharif MSP, (4) loose fiscal policies (e.g.)
farm loan waver being undertaken by many state governments, (5) continuation of high crude oil prices and (6) relative weakness of rupee,
With 50 bps rate hike in quick succession, we expect the RBI to remain in the pause mode for at least couple of policy meets barring greater
lines with the MPC continuing to closely watch inflation
With 2 back to back rate hikes delivered, it is likely that the MPC may be in pause mode in October policy awaiting more information
evolving global conditions especially on commodity prices and trade spats, pass through of MSP hikes, and impact of monsoon on food
Further the MPC may wait to see the impact of 2 rate hikes, as there is lagged impact of monetary policy moves, on macro-economic parameters
Markets are likely to remain range bound with 10Y likely to remain in 7.75%-8% range.
Somnath Mukherjee, Managing Partner Head - Products,
ASK Wealth AdvisorsRBI raised policy rates by 25 basis point, the first back-to-back raise since October 2013 (taper tantrum days)
While the contrast to the mini-apocalypse of taper tantrum is largely optical, the action merely confirms street expectations
There has been a little bit of hoping-against-hope optimism in the bond markets in the last couple of weeks, and that should go away now
Bond yields should remain elevated at these levels, with occasional bursts of spikes in response to external events
hiked interest rate for the second time in a row, highlighting inflationary pressure building in the economy
While it was largely expected by market participants, front-line indices erased early-session gains and fell in the negative territory
However, a sharp sell-off was avoided as the policy committee maintained a neutral stance.
Weakness was mainly spotted in interest-rate
sensitive sector indices such as Nifty Bank, Financial Service and Auto.
Nikhil Gupta, Chief Economist- Motilal Oswal Financial ServicesAs
per our expectations, the monetary policy committee (MPC) hiked policy rates by 25bp in its monetary policy meeting held today
production, the RBI has kept its FY19 inflation forecasts broadly unchanged
Real GDP growth forecasts are also retained at 7.4% for FY19.
Although the RBI highlighted multiple risks to inflation and growth, the risks
to both forecasts are evenly balanced
Further, as we move closer to the elections, the uncertainty will also increase
in the Monetary Policy did not trigger any adverse reaction from the bond market and in fact triggered a mild rally
This suggests that the market factored this hike and also took some comfort from the neutral stance
As far as mutual funds are concerned, the hike only makes liquid and all other accrual debt fund categories more attractive
We have seen a sharp increase in the yield to maturity YTM) of fund portfolios in these categories in the past 2 months
For example, in the liquid fund space alone, YTMs increased from an average 6.8% in April 2018 to 7.4% in June 2018
The yield up move was sharper in funds across ultra short, short and medium duration
This can be expected to only go up further with the direction of rate movement being clear now
While investors watch for FD rate hikes, they should also keep watch of the more lucrative hike in YTMs of debt funds
Investors can make the best of the attractive yields, with low volatility, in the liquid, ultra short and short term debt fund
space.
Shailendra Bhatnagar, CIO, Narnolia Financial AdvisorsOverall, the policy was reasonably cautious from the bond market perspective
We have been espousing a case for maintaining lower duration and believe this policy validates our concerns
While we do not rule out trading opportunities, we are also not expecting an incremental change in our investment strategy or interest rate
outlook on the basis of this policy
We reiterate our case for investors opting for Accrual based products for now.
Killol Pandya, Head, Fixed Income, Essel Mutual Fund25 bps
hikes by RBI is on expected line
Though stated stance has remained neutral, the statement suggests a higher possibility of further rate hike in the current fiscal year
RBI has raised inflation forecast for 2HFY19 and expects 5% inflation for 1Q FY20
Policy statement suggests risks to global growth due to rising trade tensions though it remains optimistic on Indian growth
We see upside risk to inflation forecast
Falling food prices can trigger rural distress and so will not fall beyond a point in a pre-election year
Also, crude prices post OPEC meet has mellowed a lot but remains elevated
Before this policy consensus expectation was of just one rate hike this year
This could change post the policy today and that surely is negative for the market
Also, RBI has hinted that we are at the beginning of a currency war
Looking at depreciation pressure on Yuan, any strength to Rupee could be negative for broader Indian macroeconomy
the benchmark interest rate by 25 basis points is in line with market expectations
By maintaining a neutral monetary policy stance, RBI has adopted a cautious stance given global headwinds
However, retention of GDP growth of 7.4% should be viewed positively by markets
The decision to allow banks, NBFCs to co-originate loan for priority sector is a significant development.
Karan Mehrishi, Lead Economist at
currency are at play, we believe that MPC is also playing catch up with the normalization happening in the developed world
lose its accommodative stance, auguring more hikes
As a result, the US long term yields are already hitting the 3% mark
Maintenance of an attractive yield differential was therefore paramount for the MPC at this time
