The Reserve Bank of India (RBI) kept its policy interest rate unchanged at a five-year low of 6.50 per cent on Tuesday, while signalling the prospect of another cut later this year if monsoon rains dampen upward pressure on food prices.
Marie Diron, Senior Vice-President, Sovereign Risk Group, Moody's Investors Service, Singapore:
"Looking forward, we do not expect a significant change in the monetary policy stance. Rather, the transmission of monetary policy will influence India's economic developments and credit profile.
"First, the effectiveness of the monetary policy framework in maintaining inflation at moderate levels could be tested this year. The RBI highlighted today the uncertain trajectory of inflation.
"A renewed sharp depreciation of the rupee, potentially linked to volatility in global financial markets, could also stoke inflationary pressures. Moreover, with details of the implementation of the Pay Commission's recommendation still unclear, the outlook for wage, housing and overall consumer price inflation remains uncertain and subject to upside risks."
Devendra Kumar Pant, Chief Economist, India Ratings and Research
"It is on expected lines and I think it was one of the rare events when everybody was expecting a status quo.
"As of now this does not change our view on the future rate cuts. We are expecting one more rate cut this fiscal based on the way things are.
"We still hold our view that there may be another 25 basis point rate cut in this fiscal year."
Rana Kapoor, MD & CEO, Yes Bank, Mumbai:
"I foresee RBI's cautious stance giving way to accommodative actions in August, on the back of favourable monsoon outcomes and sustained acceleration of government reforms.
"Despite a compelling case to cut interest rates amidst favourable monsoon outlook, CPI inflation in line with RBI's projected path, government's progressive reforms and fiscal consolidation and the need to nurture growth, RBI has preferred to remain cautious. It appears that the uncertainties on the global horizon with Fed policy overhang and UK Brexit vote tipped RBI's decision in favour of a status quo. With its accommodative stance still in place, I now see high probability of a rate cut in August by at least 50 bps."
Murthy Nagarajan, Head Fixed Income, Quantum AMC, Mumbai:
"The RBI left the repo rate unchanged at 6.5 per cent as was expected. They have highlighted certain upside risks to inflation given the higher food and commodity prices seen in the last three months. Good monsoon need not necessarily bring down food prices and that remains the key factor to track in order to see whether the RBI achieves its 5.0 per cent inflation target for March 2017. The RBI remains accommodative and will work towards bringing down market rates and lending rates."
Ravi Gopalakrishnan, Head-Equities, Canara Robeco Mutual Fund
"Going by the track record of the RBI, they would perhaps wait for the clarity on monsoons. We still have reasonable control on inflation but another year of bad monsoons would make things difficult. So market was not expecting any sort of move at least in this policy, hence no reaction. Post monsoon, we expect 25 basis points cut and by the end of the year another 25 basis points.
"Tough to say whether Rajan would be reappointed as the governor. At this point there is a hope that he would be continuing but I doubt market has discounted the news to this extent."
Shilan Shah, India Economist, Capital Economics
"While the consensus is expecting further modest loosening later this year, we think that rates will remain unchanged throughout the rest of 2016 and 2017.
"We think that the scope for further loosening is very limited. This is because the central bank faces a difficult task in meeting its inflation target of 5.0 per cent for March 2017."
Rupa Rege Nitsure, Group Chief Economist, L&T Finance Holdings, Mumbai:
"Some factors are pointing to upside risks to inflation such as seasonal spikes in vegetable prices, added burden of tax on services inflation, and some factors are creating uncertainty like geopolitical situation on crude oil prices and monsoon. Naturally, it was not a time to take a rate action. But I think what is positive is that they would like to take thorough review of MCLR lending rate regime. Transmission has not happened much on the longer interest rate side. As long as the structural stresses continue in large corporates, provisioning needs for banks will continue on higher side. As long as that continues, there will be limited chance for interest rates to come down on longer tenure loans."
A. Prasanna, Economist, ICICI Securities, Primary Dealership Ltd, Mumbai:
"Our view is that repo rate has bottomed out, there are no further rate cuts. RBI's commentary on inflation seems to be moving along in that direction.
"Base case is system should be able to manage FCNR redemption, and if there is pressure, RBI has indicated they will be stepping in if there's dollar shortage.
"The timeframe in which liquidity neutrality will be achieved will depend on external conditions. If balance of payments' profile is favourable then it can be in the beginning of next year, else will extend to the next financial year."
Madhavi Arora, Chief Economist, Kotak Mahindra Bank
"Though they have raised issues with regard to inflation, overall accommodative stance continues. If and when they get a chance to revisit the rate cut stance, I think there still is a scope for one more policy rate cut, probably not immediately but definitely second half of the year.
"That said, the immediate focus of the central bank would move to liquidity management. I think that is the key policy movement you would see in the next few months."
Abheek Barua, Chief Economist, HDFC Bank, New Delhi:
"This is the most tepid policy I've come across in many years. I don't think this policy gives us additional information from what the April policy did. One source of comfort is that there is an assurance to manage dollar and rupee liquidity if there is pressure during FCNR outflow. There's also a caveat that people should not take it for granted depending on the level of the rupee whether there will be intervention or not.
"The other thing is statement is couched in many conditions. I think to see the policy as hawkish is a bit premature. There is room for at least one rate cut until December.
"I think the policy is very neutral and tepid in every sense of these two words."
Sanjiv Bhasin, EVP-Markets & Corporate Affairs, India Infoline
"So market had discounted a no-change policy and jobs data from the U.S. further extinguished hopes of a rate hike by the Federal Reserve. Also, tone of the governor is more on extension of his term rather than the monetary policy. So this was all given."
"Inflation creeping up in the last month would have been a dampener because we know that monsoon is expected to be very good but right now with inflation rising, it was given that he (Rajan) would leave monetary policy unchanged."
"Any chance of a rate cut will now be more in August with a 25 basis points cut and by December repo should come down to 6 per cent."
R. Sivakumar, Head of Fixed Income, Axis Assest Management, Mumbai
"There is recognition that there is some upward momentum on inflation given the recent data. The data as it is today suggests that inflation is hovering around 5 per cent mark which limits the number of rate cuts that they can do. However, if there is a downward movement on inflation on account of monsoon they might be able to see some opportunity to change the stance.
"The current stance of monetary policy is already accommodative and the best thing they can do is to continue with improving liquidity which will allow banks to lend at lower rates. What they are trying to signal is that they expect more actual market rates to fall in terms of bank lending rate."