Mumbai: Bankers today said they anticipated status quo in the Reserve Bank's policy but expect its positive impact on bond market as inflation is likely to ease in the second half of the next fiscal.
In its 6th bi-monthly monetary policy, the RBI left the policy rate unchanged at 6 per cent and projected CPI inflation for 2018-19 in the range of 5.1-5.6 per cent in H1, and 4.5-4.6 per cent in the second half.
For the fourth quarter of the current fiscal, the RBI estimated inflation to be at 5.1 per cent. It had earlier estimated inflation in the range of 4.3-4.7 per cent in the second half of 2017-18.
"The status quo in rates was widely anticipated. The RBI inflation outlook suggests moderation in second half of FY19 that will have a positive impact on bond market," State Bank of India's chairman Rajnish Kumar said in a statement. Indian Banks Association chairperson Usha Ananthasubramanian said the policy was on the expected lines.
"Considering the thrust given to inflation management and the recent trajectory of inflation, the present stance of RBI is fully justified," she said.
The central bank has projected a GVA growth for FY19 at 7.2 per cent overall in the range of 7.3-7.4 per cent in H1 and 7.1-7.2 per cent in H2.
"It is heartening to note that the apex bank has acknowledged a positive outlook of growth due to a combination of factors such as investment, export recovery, asset resolution for large borrowers and increase in credit offtake," ICICI Bank managing director and CEO Chanda Kochhar said. Bank of India's managing director and CEO Dinabandhu Mohapatra said the policy has taken ground realities into consideration.
"The upward revision to CPI inflation forecast for Q4 FY18 to the 5.1-5.6 per cent range shows the concern by Monetary Policy Committee (MPC) on the inflation outlook.
However, this was on expected lines in the wake of rising international oil prices and impending MSP hikes," Mohapatra said. Indian Overseas Bank's managing director and CEO R Subraimania Kumar said the maintenance of neutral stance implies that future rate cut depends on movement of data.
"Increase in growth projection is on account of GST stabilisation, revival in investment activity reflecting in credit offtake, capital infusion to PSBs, resolution under IBC will create fresh investment and improve demand for credit, increase in export on account of global demand," Kumar said.
HDFC Bank chief economist Abheek Barua said, "The monetary policy was, in our opinion, far less hawkish than expected given that RBI's inflation target had been busted, fiscal limits breached and uncertainty on critical prices such as oil and local food prices (specifically the MSPs of procured food items) has multiplied."
Barua said not only did RBI left its stance neutral, there were no indications of an imminent rate hike. "Despite revising the trajectory of inflation up, the policy chose to remain neutral and this could mean that unless things go really awry (particularly in oil markets or the domestic fiscal) and push inflation way above the projected trajectory, the RBI could stay on hold for the next couple of policies," Baura said.
He said RBI may hike rates in the December quarter of calendar year 2018. The central bank today also removed the currently applicable loan limits of Rs 5 crore and Rs 10 crore per borrower to MSME for classification under priority sector.
"The removal of the priority sector cap for MSME loans will help to channel additional resources to this sector," ICICI Bank's Kochhar said.