RBI second quarter monetary policy review: Reactions
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RBI second quarter monetary policy review: Reactions

Last Updated: Tuesday, October 29, 2013, 11:44
 
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RBI second quarter monetary policy review: Reactions
New Delhi: The Reserve Bank of India (RBI) raised its policy interest rate for the second time in as many months on Tuesday, warning that inflation is likely to remain elevated for the rest of the fiscal year, and rolled back an emergency measure put in place to support the slumping rupee.

The central bank lifted its policy repo rate by 25 basis points (bps) to 7.75 percent, in line with the expectations of most analysts in a recent Reuters poll, despite the risks to an economy beset by sluggish growth. The banks` cash reserve ratio was held at 4 percent.

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI:

"The RBI policy has certainly become more transparent as it has fulfilled market expectations of 25 bps hike in repo and 25 bps cut in MSF. As market expectations have been fulfilled there will not be any knee-jerk reaction across financial markets.

"Normalisation of the exceptional measures and the provision of additional liquidity support is positive for both the bond and credit markets. However, the reduction in the GDP estimate and increase in the inflation forecast underscores the possibility that India is passing through a stagflationary phase making the working of monetary policy in isolation difficult.

"Going ahead, there will have to be better co-ordination between monetary, fiscal and exchange rate policy in order to be able to tide over the current stagflationary phase."

GAGAN BANGA, MD & CEO, INDIABULLS HOUSING FINANCE, MUMBAI:

"Reducing the MSF rate by 25 basis points and improving the liquidity provided through term repos will reduce short-term rates, which will keep interest rates on home loans stable.

"Hike in the repo rate shows that the monetary policy continues to address the persistent inflation, which remains high when compared with other emerging market economies. Growth for now will have to be addressed by removing infrastructure bottlenecks and other structural policy measures."

ANJALI VERMA, CHIEF ECONOMIST AT PHILIPCAPITAL:

"The policy is exactly in line with expectations. I think the MSF (Marginal Standing Facility) will remain the operational rate for now given the liquidity conditions. Going ahead, the RBI will watch both the WPI and CPI for its rate decisions."


RADHIKA RAO, ECONOMIST, DBS, SINGAPORE:

"Today`s move was a follow-through of the hawkish September policy guidance as high and persistent inflation is seen as an impediment to the medium-term growth outlook. The new policy approach is a single-minded focus to contain inflationary expectations, with or without support from fiscal policy.

"This might carry short-term hurt to growth, but either way an accommodative monetary policy cannot spur recovery in isolation. On the other hand, however, risks that inflation might become generalised and entrenched are more material.

"With the cut in the MSF (Marginal Standing Facility) rate, the effective corridor now narrowed to 100 bps between the MSF and Repo rate....Going forward, there is still room for the other liquidity constraints to be unwound, but in a gradual and calibrated manner."



Reuters

First Published: Tuesday, October 29, 2013, 11:44


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