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Rajnish Kumar, Chairman, SBI said, "The RBI policy decision to change the policy stance to “ accommodative” will simultaneously help the financial system to navigate to a lower term structure of interest rates and also accommodate growth concerns. On the regulatory front, the decision to lower the Basel III Leverage Ratio will augment the lendable resources of the Banks. Also the move to scrap transaction charges for RTGS & NEFT will boost digital transactions. The decision to issue draft for 'on-tap' licensing of small finance banks will add depth to this sector. Launching of the on-line trading platform for retail participants is a positive development for small & medium forex customers. The RBI intent to harmonize existing regulations for different money market products augurs well for market transparency.”
A 25 bps rate cut fails to cheer the market, Sensex tanks 500 pts; here's why
RBI also lowered the GDP growth rate forecast for FY20 to 7 percent from 7.2 percent that indicates the likelihood of economy facing headwinds led by a slowdown in consumption and private investment, said experts
A downward revision of FY20 GDP growth forecast and no major measure to address liquidity conditions for NBFCs dented sentiment, suggest experts.
Zarin Daruwala, CEO, Standard Chartered Bank, India said, "The combination of the repo rate cut, the change to an accommodative stance and the resolve to provide adequate liquidity, will provide the impetus to counter growth and investment headwinds. A review of the liquidity framework is a welcome move and should aid monetary transmission. Additionally, the easing of the leverage ratio requirement will boost bank lending and should serve as the much needed counter-cyclical stimulus."
Indices see biggest one-day fall in 2019, banks drag Sensex 554 pts after a rate cut of 25 bps announced by RBI's monetary policy committee.
Manufacturing firms participating in RBI’s industrial outlook survey expect input cost pressures to intensify on account of higher raw material costs and salaries in Q2.
RBI had conducted two OMO purchase auctions in May amounting to Rs 25,000 crore and a US dollar buy/sell swap auction of US$ 5 billion (Rs 34,874 crore) for a tenor of 3 years in April to inject durable liquidity into the system.
RBI has announced that it would conduct an OMO purchase auction of Rs 15,000 crore on June 13, 2019.
Industry bodies have also welcomed the 25 bps rate cut by the MPC. Sandip Somany, President, FICCI said that they hope that this third consecutive rate cut in repo rate will lead to effective transmission, encouraging banks to lower their lending rates for both retail and corporate credit.
VS Parthasarathy, CFO, Mahindra Group said, "In the government innings 2.0, RBI’s 3.0 (3rd rate cut) lays the foundation for aspirational GDP growth of 8 percent. While the rate cut and stance is good, the transmission and execution will make it great and help the country to rise. Banking and NBFC are the backbone of the country which need to be nursed back to health. Liquidity is the blood in the veins of this country.”
Crude oil prices remained volatile, reflecting evolving demand-supply conditions and geo-political concerns and this will play a role in the rate decisions of the MPC.
The recent default by DHFL has raised concerns of a contagion risk. CLSA said in a note that the intervention of RBI may be required as DHFL default can expose Rs 1 lakh crore in borrowing to the risk of default/haircuts.
'Real' or inflation-adjusted GDP grew 6.8 percent in 2018-19, lower than previous year's 7.2 percent. India recorded its annual lowest GDP growth since 2013-14, and the lowest quarterly growth since April-June 2018, national income data released by the Central Statistics Office (CSO) showed.
Sunil Mehta, MD & CEO, Punjab National Bank and chairman, Indian Banks Association said that the repo rate cut by another 25 bps is on the expected lines. He added that the change in the stance of the monetary policy from neutral to accommodative indicates that rate hike is off the table for the time being. Mehta also said that this clarity is indeed positive for economic growth, for banks and also for the markets.
Umesh Revankar, MD and CEO, Shriram Transport Finance said that because of higher interest rates the consumer spending like auto sales, real estate has been very weak. Revankar said they urge RBI to open up funding to retail NBFCs through banks that will stimulate the consumer spending.
RBI governor Shaktikanta Das said that exports grew by 0.6 percent in April 2019, but imports grew at a somewhat accelerated pace, leading to a widening of the trade deficit.
Khushru Jijina, MD, Piramal Capital and Housing Finance said that the the credit crunch in the NBFC sector has witnessed a corresponding decline in manufacturing and construction activities in the last two quarters of 2018-19. Jijina added that they anticipate more decisive and pro-active policy measures to address the current liquidity crisis, that will enable NBFCs to restore lending activities, especially to these critical sectors.
Vasu Ramaswami, COO, Muthoot Fincorp said, “The latest rate drop should help in improving consumption demand, particularly for the common man, especially once banks decide to pass this rate change to their customers. For the NBFC sector, which has been under some level of tightened liquidity conditions, this should also help in accessing more funds at a cheaper rate, which would eventually help in providing timely credit to millions of their small customers.”
B Prasanna, Group Head-Global Markets-Sales, Trading and Research, ICICI Bank said that the internal committee for liquidity framework is a welcome step. He added that it will help to reduce the information asymmetry regarding systemic liquidity and will benefit not only markets but also banking decisions as regards, deposit taking, lending and transmission.
Sensex falls over 600 points while Nifty is below 11,850 after the 25 basis points repo rate cut by the MPC.
RBI has said that political stability, high capacity utilisation, the uptick in business expectations in Q2, buoyant stock market conditions and higher financial flows
to the commercial sector augur well for investment activity.
The next few weeks will involve a slew of important regulatory reforms by the RBI including liquidity measures, 'on-tap' licenses for small finance banks as well as the Jalan committee report.
Gaurav Dua, Sr VP, Head-Strategy & Investments, Sharekhan by BNP Paribas said, "Rate cut and moderation in GDP growth forecast is in line with expectations. Clearly the chance in stance and the commentary indicates that the rate cut would continue in the next two or more forthcoming policy review meet this year. RBI has also indicated some measures to ease liquidity with stance of maintaining a surplus on LAF window rather than deficit. A working group of liquidity will also be formed to ensure transmission of rate cuts to borrowers. Bond yields have already rallied on expectations and could again soften further after a temporary hardening led by profit booking by some banks. We continue to retain positive view on banking sector.”
RK Gurumurthy, Head-Treasury, Lakshmi Vilas Bank said that the besides moving to an accommodative liquidity stance, the Governor also reiterated in the presscon that RBI will ‘ensure adequate liquidity in the system. Gurumurthy said that it could imply they could be more measures in the coming days that help achieve faster and sizeable rate transmission--a pass through of 75 basis of the three rate cuts should happen in the coming months, currently only about 21 basis is perceived to have been transmitted.
RBI governor Shaktikanta Das said that even though housing finance companies do not fall under their regulatory purview, the central bank will monitor their activities.