RBI policy: Growth to revive soon on lower rates, says M&M

The effect of this will take sometime, he says adding, "We had anticipated this and because of the lower inflation, we had already revised our pricing for deposits in the one to three-year tenure as also the shorter tenure.Banking system will not be able to cut rates in a couple of months. Some banks have already reduced deposit rates. Those banks which have reduced deposit rates approximately a month back may be willing to look at a rate cut after a couple of months but most of the banks in the system have not reduced the deposit rates. So they may find it extremely difficult to cut lending rates.”

12:15 pm: Jayesh Mehta of Bank of America says he is expecting the central bank to cut rates to the tune of  75-100 basis points (bps) in CY2015.12:14pm: Sonal Verma of Nomura expects Raghuram Rajan to cut interest rates to a maximum of 50 basis points (bps) in 2015.

"RBI also reiterated that government has more or less accepted the 4, plus minus 2 percent target is important in terms of anchoring the space that will be available for rate cut. So, 50 basis point is quite reasonable in this inflation targeting framework," she says.

12:12pm: Nirmal Jain of IIFL says he expects the earliest rate cut in February 2015.

“The central bank is comfortable with the bond yields and commodity prices, They want to be very sure that when they start the rate cut cycle inflation doesn’t move up and they don’t have to reverse it later.”

12:10pm: C Rangarajan says the central bank should bring down its inflation target for January to 5 percent and adds that the real rate interest at 2 percent is at appropriate levels. 12:05: Sonal Verma of Nomura says though the Guv has hinted at intra-policy rate changes, the most likely time of a rate cut is now in April 2015.11:55: On the scrapping of the 80:20 gold scheme, RBI Governor Raghuram Rajan says the decision was a reasonable one.

“While there is a natural demand for gold due to weddings, jewellery, etc, hopefully, the performance of financial assets will convince investors to park funds in other investment opportunities,” says Rajan

11:47: RBI Guv Rajan says the country’s economy will be out of the woods only when investments into the country sees a significant pick up.

“The railways provides a massive investment potential. There is huge interest in defence production too. So we need to see stronger demand to overcome the excess capacity that exists currently,” he explains.

11:35: On the announcement that the central bank could change rates even outside the policy cycle, Rajan said he is ready to keep the risk on when the RBI will take a call on the same.

“Once we have enough information, we will make a move. If the information comes in between policy cycles, we’ll act on it. We just want to say that we are alert on the data points,” adds Rajan.

11:20: In its statement, the RBI has said, “Still weak demand and the rapid pace of recent disinflation are factors supporting monetary accommodation. However, the weak transmission by banks of the recent fall in money market rates into lending rates suggests monetary policy shifts will primarily have signaling effects for a while. Nevertheless, these signaling effects are likely to be large because the Reserve Bank has repeatedly indicated that once the monetary policy stance shifts, subsequent policy actions will be consistent with the changed stance. There is still some uncertainty about the evolution of base effects in inflation, the strength of the on-going disinflationary impulses, the pace of change of the public’s inflationary expectations, as well as the success of the government’s efforts to hit deficit targets."

11:16: RBI Governor Rajan says the change in monetary policy stance now would be premature and it is likely in early-2015 if inflation eases."A change in the monetary policy stance at the current juncture is premature. However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle," reads the RBI statement.

11:13: Jayesh Mehta, Managing Director & Country Treasurer, Bank of America says no one expected a rate cut in this monetary policy so, this doesn’t come as any surprise. The next hurdle, he adds, is the November inflation.

“Market was balanced as nobody expected a rate cut. With a dovish tone, policy is completely as per expected lines,” he adds.

11:10am: P Pradeep Kumar, MD- Corporate Banking, State Bank of Indiafeels there is nothing in this policy that will enable teh bank to drop rates immediately. The effect of this will take sometime, he says adding, “We had anticipated this and because of the lower inflation, we had already revised our pricing for deposits in the one to three-year tenure as also the shorter tenure.”

11:07: Sajjid Chinoy of JP Morgan says this monetary policy is pragmatic and data-contingent. “We expected the RBI to wait for Budget. So the rate cut may come in March, it may not necessarily wait for April,” he says.

11:05 am: The central bank has said that the risk to its January 2016 target of 6 percent is now evenly balanced and the country’s GDP is seen at 5.5 percent in 2015-16.

11:00am: Combating immense pressure on both bankers and corporates’ front, the Reserve Bank Governor Raghuram Rajan maintained status quo in today’s bi-monthly policy. The repo rate, or the rate at which RBI extends short-term loans to banks, stands unchanged at eight percent while the reverse repo rate is seven percent. The cash reserve ratio (CRR) for banks has been fixed at four per cent.

10:55am: Samiran Chakraborty of Standard Chartered Bank says the RBI is likely to be in wait-and-watch mode before taking any call on the policy rates.

10:50 am: Reserve Bank Governor Raghuram Rajan will be announcing the bi-monthly policy in just a few minutes. Most bankers and economists polled by CNBC-TV18 expect Rajan to keep policy rates unchanged yet again today. Only 5 percent expect a 25 bps rate cut this time. With consumer price inflation falling to 5.5 percent in October and crude falling to a four-year low, most respondents agreed the RBI could start cutting rates earlier than previously expected.