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07/02/2019 04:14pm

Industry reacts to RBI’s decision of reducing repo rate

image Industry reacts to RBI’s decision of reducing repo rate

New Delhi, Feb 7 (KNN) Sharing reactions with KNN India on reduction of the repo rate by 25 basis points, experts from various organizations welcomed the Reserve Bank of India (RBI) decision.

Below are their views:

 

Dhananjay Sinha, Head of Research, Economist & Strategist, Emkay Global Financial Services

The RBI announced a changed in stance to neutral along with a 25bp cut in repo rate to 6.25%. The change in stance is broadly in line with consensus expectations. But the rate cut was somewhat unexpected. The rate cut decision has been justified on the back of a sharp cut in projected headline inflation by the RBI.

We think the combination of reflationary budget last week along with monetary easing by the RBI will provide further boost to consumption demand. We believe the implication for inflation is somewhat on the higher side and RBi may have taken a benign view in this respect. Core inflation remains high, averaging at 6% over the past 6 months, which is significantly higher than the non-core components which is -1.4% in Dec’18. Hence, with the monetary policy decision significantly aligned to the headline inflation, the decision incorporate a larger influence of the non-core inflation. The combination of fiscal expansion and rate cut will induce upside risk to core inflation over the medium term, in our view.

The RBI has also enhanced the limit for collateral-free agri loans to Rs 1.6lacs from Rs 1lac earlier. This measure of RBI is aligned with the big fiscal boost provided to the sector in the recently announced budget. One can expect stronger push on banks to accommodate larger agri loan waivers and enlargement in credit risk on agri loan portfolio.

The RBI has also further relaxed the ECB norms for corporates wherein they can borrow up to USD 750mn through the automatic route, without the restriction of end use to repay existing rupee loans. This is being done to ease the funding pressure on arising from the tightening credit conditions in the domestic market. This becomes relevant specially in the context of the funding constraints faced by the NBFC sector and companies undergoing insolvency and bankruptcy process. This measure can provide short term respite to the BFSI sector and also stressed corporates. However, this will also expose Indian corporates to currency risk going forward even as it fails to address the core issue of credit risk.”

 

T Chitty Babu, Chairman and CEO, Akshaya Pvt Ltd

We welcome the RBI’s decision to cut repo rate by 25 basis points to 6.25%. It is indeed a positive step to revive the demand in the real estate sector. It will allow the banks to pass the rate cut benefits on home and other loans to the customers. Coupled with the announcements made in the recent Interim Budget, this will help boost the real estate sector across the country and improve the home buyer sentiments. The step will increase lending as the EMIs will become cheaper and the real estate developers can witness a steady growth in the sales of homes across different segments in the coming quarter.

 

Shivendra Foujdar, Founder and Managing Partner, Avighna Trades

RBI MPC has surprised all stake holders in market with rate revision of .25 bps. On grounds of easing out inflation rate and stable recovered crude oil rates along with world trade movements. Other major announcements are easing ECB policies for external borrowings. Limit for without collateral loans to farmers also increased to 1.6 lacks from earlier 1 lack, it could be more impactful politically than economically in election season, though adverse impact on health of banks specially nationalized one cannot be completely rolled out. All in all MPC decision looks positive and aiming to growth.

 

Ravi Sehgal, Chairman, EEPC India

EEPC India urges RBI to ensure transmission in policy rate cut. Complementing the Reserve Bank of India for announcing a 25 basis points policy rate cut, Sehgal said the banks must be asked to ensure transmission of the reduction in interest rates to the borrowers, particularly exporters, who are facing several global challenges besides the rising cost of output. 

The Monetary Policy Committee itself, in its resolution, has highlighted the global challenges and uncertainties like trade tensions and slowdown in several key economies. Under these circumstances, the rate of borrowing must come down especially when bank credit to exporters has declined considerably.

 

Debabrata Bhattacharjee, Head of Research, CapitalAim.

RBI rate cut with 0.25 BPS. RBI is doing in line with government prospective. Governments wanted a rate cut for further growth in economy. This will give boost to industry. But it also depends on Banks and lenders, will they pass on the benefit to their clients. Most of the brokerage firms expecting a rate cut between 0.25 - 0.50 BPS. From stock market point of view, it is already discounted in indices. Traders are looking to book some profit from here which can dive indices to lower levels. Whereas, on Monday’s derivative data shows the PCR which stood at 1.61 which indicates, market has a limited upside zone in near term & also highest open interest concentrates in between 11000-11100 CE strikes level.

 

Mustafa Nadeem, CEO, Epic Research

RBI has given a boost to markets as it cuts the rate by 25 BPS hence a change is stance is seen of RBI from calibrated tightening previously to "neutral". 

This rate cut means a lot for the market as it is announced post budget. With clear words from RBI, the rate cut has accounted for every phenomenon. The recent changes in the tax rates, the relaxations, GST and the expense and the revenue of the budget. Though it primarily aims to keep inflation in a tab and boost growth, this is a much-needed breather for market and specifically interest rate sensitive sectors like Housing, Automobile, and also it will to an extent try to settle the dust of recent liquidity crunch that happened post the ILFS fiasco.

Markets are likely to take it in a positive note but with the recent run-up to 11100, we believe it may be ripe for traders to take some profit. In a medium-term perspective market has always reacted positively to a Rate cut. Since we are in an environment where RBI is now neutral with a focus to keep growth in an economy and tab on inflation, we may attract long term money that can move the market. This is a positive event for the market though on a cautious note - we have an election in the next 3 months. So that needs to be taken into account. 

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