RBI Monetary Policy highlights: Rate cut to spur growth and boost consumption, says India Inc

George Heber Joseph, CEO & CIO,ITIMutual Fund said that there is a possibility of inflation shooting above the RBI forecasts. From the Debt Funds perspective, he said that the short to medium end of the yield curve continues to offer better risk-adjusted returns than the long end.

Naveen Kulkarni, Head of Research, Reliance Securities said the rate cut of 25 bps by the RBI has not enthused the market because it was building in a higher reduction. The RBI has also cut its GDP forecast for the year significantly, by 800 bps to 6.1 percent. He said that while the stance maintained by the RBI is mindful of the structural slowdown in the economy, the market feels a greater push was needed.

Abheek Barua, Chief Economist & Executive Vice President, HDFC Bank said that the monetary policy speech clearly focused on growth and has done so by reducing the repo rate by 25 bps. This indicates an immediate reduction in the borrowing cost for some segments of the borrowers. While for the others it will come down over a course of time. Barua expect more rate cuts in the forthcoming policy considering growth is somewhat tepid and the RBI's mission as it has made it clear today is to get growth up through a combination of rate cuts and keeping money moving in the system.

Arun Thukral, MD & CEO, Axis Securities said the rate cut by RBI was clearly, on reviving growth. Further, the measure to raise the lending limit for NBFC-MFI from Rs 1 lakh to Rs 1.25 lakh per eligible borrower will aid financial inclusion and improve the prospects of NBFC-MFIs. RBI since April 2019 has cut rates by 110bps, but the transmission of rate cuts to the end consumer is yet to happen fully. The transmission will greatly help in boosting overall demand and push up the consumption and investment environment in the economy. The overall tone of the policy was very dovish indicating an increased probability of rate cuts in future policy meets if growth in the economy doesn’t pick up.

RajeevRadhakrishnan, Head of Fixed Income & Fund Manager ofSBIMutual Fund said that even as macro challenges facing the economy cannot be addressed by monetary policy alone, given the extant growth - Inflation outlook and cyclical / structural factors impacting growth, the current easing phase can sustain for a while even as liquidity conditions may remain conducive for rates transmission.

SBIChairman Mr.RajnishKumar said the 25 bps rate cut, coupled with an explicit policy acknowledgement of further rate cuts would ensure that fiscal and monetary policy work in tandem in arresting growth concerns.On the development and regulatory frontthedecision to extend thecollateralisedliquidity support on round the clock basis is a welcome step as it will help banks extend theNEFTfacilityin a seamless and non-disruptive manner.

George Alexander Muthoot, MD - Muthoot Finance Limited said that he looked forward to recovery in consumption levels with banks eventually passing on the benefits to both corporates and consumers. With constant rate cuts, amendments in policies and the beginning of festive season, he expected the economy to be soon in its best health.

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At first glance, it appears the RBI rate cut has failed to boost market sentiment as the equity benchmarks Sensex and Nifty fell after the central bank announced a rate cut of 25 basis points. Sensex plunged 407 points intraday and Nifty fell below 11,200 with most rate-sensitive stocks in the red. Market observers said while the rate cut is a positive move, the market felt disappointed as it was short of expectations.

MurthyNagarajan, Head-Fixed Income, Tata Mutual Fundfeels theRBI may cut rates in the coming months by another 50 basis points as both domestic and international growth is weak and inflation expectations globally continues to be lower.

A rate cut generally augers well for companies that are debt-laden (as it reduces interest cost), the auto sector, and banks as well as NBFCs, as it brings down the cost of funds for them. For the real estate sector, a fall in interest rates could also mean lower EMIs.

While RBI governor Shaktikanta Das did not elaborate on the Lakshmi Vilas Bank (LVB) issue, shares of LVBcontinued to remain under pressure as they were locked in lower circuit again on October 4. It was trading near 10-year low after the RBI initiated prompt corrective action (PCA) plan against the lender.

The Indian rupee slipped and trading at day's low at 70.98 per dollar against previous close 70.88.The local currency has touched 71.01 intraday Friday.

Gayathri Parthasarathy, Partner and National Head, Financial Services, KPMG in India said with further reduction in interest rates, it is now crucial that the transmission effect sets in quickly, so as to kickstart new investments and business activity; ahead of the festive season.

Mayank Jalan, President, Indian Chamber of Commerce said that the reduction in rate will bring down the lending rates and hence will provide the much needed liquidity in the economy. jalan added that it will also incentivise investment and boost consumption.

RBI has been taking steps for popularising the cross-border transactions in Indianrupee (INR), especially in respect of external commercial borrowing (ECB), trade credit andexports and imports. It said that it will enhance the scope of non-interest bearing Special Non-resident Rupee (SNRR) Account bypermitting persons resident outside India to open such accounts to facilitate rupee denominatedECB, trade credit and trade invoicing.

Various high frequency indicators suggest weak domestic demand conditions. The business expectations index of the Reserve Bank’s industrial outlook survey shows muted expansion in demand conditions in Q3.

Dhiraj Relli, MD & CEO, HDFCSecurities said that theRBI cutrate by 25 bps and maintains stance to 'accommodative'as expected.

Anagha Deodhar, Economist at ICICI Securities, said the MPCretained its stance at ‘accommodative’ indicating there is room for further rate cuts. Deodhar said theyare expecting one more rate cut, albeit of smaller magnitude (15bps) later in the fiscal year. The upward revision in Q2 inflation confirms that MPC had underestimated inflation previously. Deodhar said they expect inflation to average 3.65 percentduring FY20.

RBI's 25 bps rate cut should help revive the demand.Reserve Bank’s consumer confidence survey shows weak consumer sentiment and tepid consumption demand, especially relating to non-essential items.

Market check: The Sensex is still trading weak, down a little under 300 points, with the MPC rate cut failing to enthuse investors.

Motilal Oswal, Managing Director, Motilal Oswal Financial Services said that the issue is, transmission of these rates in the system. While RBI has been asking banking system to offer loans at a level that reflects the benchmark cut, Oswal said that the system is reluctant to pass on, due to risk aversion.Oswal added that there is a possibility that equity markets will trade cautious and range bound.

George Alexander Muthoot, MD,Muthoot Finance said thatRBI’s rate cut of 25 bps focuses on improving the financial health of the economy and managing inflation. Muthootsaid that with constant rate cuts, amendments in policies and the beginning of festive season, theyexpect the economy to be soon in its best health.

Niranjan Hiranandani, National President, NAREDCOsaid that the current economic scenario makes it the right time for RBI to announce its one time roll over scheme similar to that was rolled out during the Lehman crisis in 2009 under the global slowdown scenario, which willact as remedy to the ailing companies.

Umesh Revankar, MD and CEO,Shriram Transport Finance said that with the onset of festive season, theyexpect the rate cut would revive the economic growth while keeping inflation in check.

Shubhada Rao, Chief Economist, YES Bank said thatwith CPI inflation projected to remain under 4% in the near to medium term, it is a welcome sign that the MPC has now decided to maintain accommodative policy stance 'as long as it is necessary to revive growth'. She added that this should keep the door open for further rate cuts in the coming months.

At 13:25 hrs IST, the Sensex is down 127.43 points or 0.33% at 37979.44, and the Nifty down 49.10 points or 0.43% at 11264.90.About 988 shares have advanced, 1427 shares declined, and 172 shares are unchanged.

RBI is hopeful that the recent measures such as the sharp cut in corporate tax rates, stressed assets funds for the housing sector, infrastructure investment funds, implementation of a fully electronic GST refund system and funds for export guarantee would be helpful.

RBI said that theyinstitutionalise an internal ombudsman scheme at the large non-bank PPI issuers. The internal ombudsman is intended to facilitate a
swift and cost-effective complaint redressal mechanism within the entity and provide anadditional tier for grievance redressal.

The sharp cut in the GDP forecast from 6.9 percent to 6.1 percent could be a further reflection of the wideningnegative output gap.

Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers said that they now expect that rather than 5 percent, the repo rate in this cycle would bottom out at 4.5 percent. Hajra added that RBI's stance coupled with recent government measures bode well for the equity market.

RBI has said that the financial markets remain volatile withcurrencies of several emerging market economies trading with a depreciating bias in therecent period.

RBI says that the continuing slowdown warrants intensified efforts torestore the growth momentum.

Chetan Ghate, Pami Dua, Michael Patra, BPKanungo and Shaktikanta Das voted to reduce therepo rate by 25 basis points. RavindraDholakia voted to reduce the repo rate by 40basis points.

The repo rate is at its lowest level since April 2010. RBI governor Shaktikanta Das refused to give details on what is the lowest rate to which the repo could drop to.

Shishir Baijal, Chairman & Managing Director, Knight Frank India said that in light of the ongoing economic distress in the country, the 25 basis points cut in policy rate is short of expectation. He added that while it is the fifth consecutive rate cut this year, it is insufficient to support the flagging consumer demand.

Will ensure that no other systematically-important large NBFCs fail in India, says RBI governor Shaktikanta Das. He added that wherever required, the management of such entities havebeen called by the RBI.

India-US trade issues will get resolved soon, says Shaktikanta Das.

Every case is unique and based on the PMC Bank case facts, we have acted as soon as it came into light, says RBI governor. Shaktikanta Das added that interest of depositor is highest priority.

RBI governor Shaktikanta Das says that sectorslike real estate are analysed under thefinancial stability report.

We do emphasiseon the need for prudent lending with all banks, says RBI governor Shaktikanta Das.

Every such incident (PMC Bank issue) is an experience andwe will havea fresh look at the regulatory framework (for cooperative banks) and if any change is needed, we will discuss it with the government, says RBI governor Shaktikanta Das.

NBFC sector remains under RBI's intense and close supervision, says RBI governor Shaktikanta Das.

RBI governor Shaktikanta Das said that the total repo rate cuts have been 135 basis points till now.