India Inc hails MPC: Captains of commerce say RBI's Repo Rate cut good for Indian economy

On account of additional liquidity solving the credit line crisis that has hit the banking, NBFC, infrastructure, tech and other industrial output, Shaktikanta Das led RBI Monetary Policy Committee's decision to cut Repo Rate by 25 bps has gone down well among the captains of commerce representing the India Inc. They say further dispensations on FALLCR (Liquidity for Liquidity Coverage Ratio), while not aiding systemic liquidity will surely ease the burden on banks to raise fresh resources to manage LCR requirements.

B Prasanna, Head – Global Markets group, ICICI Bank said, “The MPC decision taken today to cut the repo rate by 25 bps while keeping the stance neutral is a prudent and laudable one. It has successfully managed to keep its stance flexible to react to the need to support growth even as it keeps a close watch on the upside concerns on inflation from rising oil and food prices going ahead. However, the sharp downward revisions in the CPI trajectory for FY2020 and expectations of benign inflation till FY2021 as well as the downward revisions in growth forecasts for FY2020 do give the MPC more room to support growth if required." 

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Prasanna of ICICI Bank said that if incoming data on inflation and growth were to further surprise on the downside we could see the MPC cut rates once more going ahead. "It was surprising though that the MPC chose not to be more proactive on liquidity management while still deliberating on the need for keeping liquidity neutral in order to aid transmission. Further dispensations on FALLCR, while not aiding systemic liquidity will surely ease the burden on banks to raise fresh resources to manage LCR requirements. On the developmental front, the proposal to commence the process of implementation of an international settlement of Government securities by ICSD is a positive step towards the internationalization of our Gsec market,” said B Prasanna.

Standing in sync with ICICI Bank views Sapan Gupta, Partner & National Practice Head, Banking and Finance at Shardul Amarchand Mangaldas & Co said, “The statement on the issue of releasing of fresh circular on a stressed asset is welcomed. The revised circular should take inputs from banks and other practitioners. Also, the decision of sending defaulting companies to NCLT should be left to the discretion of banks but can be monitored closely by RBI.”

Elaborating upon the RBI stance Amar Ambani, President & Head of Research, YES Securities said, "Even though the official stance remains neutral, with lowering of inflation expectation and worries circling around deceleration in growth rate, the RBI has effectively turned accommodative, in our view. Having already changed position from ‘Calibrated Tightening’ in the previous policy, RBI would have decided to stay neutral, to take time to monitor El Nino impact, the recent acceleration in wages, effects of consumption stimulus offered in interim Budget and global trade movement." Ambani of Yes Securities said that improving the economic prospects will be achieved with improved liquidity situation, through monetary policy and government action on stuck project resolution and measures outside the RBI policy. "There is a possibility of another rate cut in 2019 - not in the next RBI meeting though, on account of General Elections,” said Ambani.

Vivek Ranjan Misra- Head of Fundamental Research at Karvy Stock Broking said, “A benign inflation outlook and a slowdown in economic activity has nudged the central bank to cut rates again, taking the repo rate to 6 per cent. The overall benign inflation environment leaves room for further cuts, but the high core is a concern. We believe that RBI has room to cut rates by 50 bps over the course of FY2019-20 if growth doesn’t recover. We are more concerned about liquidity, the USD-INR swap should help, however, more may be needed. We do expect growth to recover over by H2FY2019-20 and RBI may pause after one more cut."