The market remained lacklustre post
announcement of RBI policy. The Reserve Bank of India kept repo rate unchanged
at 7.5 percent and cash reserve ratio at 4 percent.
"One critical thing that RBI has said is
to wait for the impact of its front-loaded rate cuts on bank lending rates. I
think that will happen very soon and if data is supportive of a rate cut we
might see one between policies," he adds.
The Reserve
Bank of India (RBI) Tuesday left key interest rates unchanged at its bi-monthly
review, after effecting two out-of-cycle rate cuts earlier this year for 25
basis points (0.25 percent) each.
Here are
the key takeaways from the RBI’s policy document:
* Global
growth is likely to firm up through 2015 and 2016, supported by stronger
recovery in the advanced economies (AEs) and soft energy prices.
* Global
financial markets have been boosted by expectations of normalization of US
monetary policy being pushed back into late 2015. Long-term yields have
declined to all-time lows on weak inflation expectations, compression of term
premiums and the safe haven allure of US Treasuries.
* Domestic economic activity is likely to have strengthened in
Q4. Second advance estimates of the Ministry of Agriculture suggest that the
contraction in food grains production in 2014-15 may turn out to be less than
earlier anticipated. Growth in allied activities is likely to remain strong as
in the recent past, though it remains to be seen whether it will fully
compensate the decline in food grains output.
* The industrial
sector, and in particular, manufacturing appears to be regaining
momentum with the growth of production in positive territory for three
consecutive months till January. Mixed signals are coming from the service
sector.
* Retail
inflation measured by the year-on-year changes in the revised consumer price
index (CPI) firmed up for the third successive month in February as favourable
base effects dissipated, despite the price index remaining virtually flat since
December. Inflation excluding food and fuel fell successively in the nine
months till February. A large part of this disinflation has been on account
of the slump in international crude oil prices.
* At
current levels in the first quarter of 2015-16, CPI inflation is projected
at around 4 percent by August but firming up to reach 5.8 percent by the
end of the year. The Reserve Bank will stay focussed on ensuring that the
economy disinflates gradually and durably, with CPI inflation targeted at 6
percent by January 2016 and at 4 percent by the end of 2017-18.
* Export performance has been progressively weakening and
contraction set in on both non-oil and petroleum product exports since December
2014. Exports of services, particularly, software and travel have provided a silver lining and have helped to hold
down the current account deficit (CAD) which has narrowed in Q3. This
improvement has likely extended into Q4.
* The
outlook for growth is improving gradually. Comfortable liquidity conditions
should enable banks to transmit the recent reductions in the policy rate into
their lending rates, thereby improving financing conditions for the productive
sectors of the economy.
* In
order to improve the efficiency of monetary policy transmission, the Reserve
Bank will encourage banks to move in a time-bound manner to
marginal-cost-of-funds-based determination of their base rate. Detailed
guidelines will be issued shortly.
* As part
of continuing measures to promote liquidity, the Reserve Bank will formulate
a scheme for market making by primary dealers in semi-liquid and illiquid
government securities. Details of the scheme will be worked out and
implemented in consultation with market participants within the next three
months.
The second bi-monthly monetary policy statement will be announced
on June 2, 2015.
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