RBI Monetary Policy: Central bank's move a mistake and a bit surprising, say experts

Updated : October 06, 2018 08:17 AM IST

The Reserve Bank of India (RBI) opted for a surprising status quo at the bi-monthly review on Friday on expectations of softening price rise, but changed the policy stance to "calibrated tightening" from "neutral".

A majority of the analysts and bankers were expecting the six-member Monetary Policy Committee (MPC) to go at least for a 0.25 percent hike in key rates at the review.

Also read: Expert Views: RBI keeps key policy rates unchanged in surprise move

The repo rate, at which the RBI lends to the system, will continue to be at 6.5 per cent and the reverse repo at which it absorbs excess funds will be 6.25 per cent. The MPC voted 5:1 in favour of a status quo, with only Chetan Ghate voting for a 0.25 percent hike.

Sajjid Chinoy, chief India economist, JPMorgan, said the decision by RBI to keep the repo rate unchanged at 6.50 percent is a bit surprising, "Risk to inflation is to the upside as oil prices and the currency is moving higher."

Taimur Baig, managing director and chief economist, DBS Group Research, attacked RBI’s decision, “I will be blunt. I think it was a mistake."

“The first issue is the whole world is going through a major recalibration in terms of monetary policy and India does not live in a vacuum. So the fact that the US Fed is raising rates, emerging market economies are raising and it sort of puts the onus on the RBI to not being left out,” he said.

“The second issue is given where demand and prices are right now and where the outlook is, it makes sense to remain on the hiking trend. The fact that the rupee has already sold off so much, it does not help the fact that they are taking a pause,” Baig said to CNBC-TV18.

Lakshmi Iyer, chief investment officer (Debt) and head of products, Kotak Mahindra Asset Management Company, said, "Given the status quo, we expect short term rates to ease, while long term yields may trade range bound. The macro needs monitoring and rupee and crude oil prices could be leading the way for markets going forward."

"There has been an intent demonstrated to maintain liquidity in the banking system. However, we have seen a policy stance change from neutral to calibrated hikes signaling that rate cuts now are behind us," Iyer added.

Surendra Hiranandani, chairman and managing director, House of Hiranandani, said, "From a consumer’s perspective, home loan rates are attractive, so they must utilise this opportunity and make their purchases by cashing in on deals in the market."

He further said, "The central bank seems to have taken the broader economic and liquidity scenario present in the market before making the move. The tightening of the stance indicates that more hikes could happen in the coming months."

Chandra Shekhar Ghosh, managing director and chief executive officer, Bandhan Bank said, "Most importantly, central bank has indicated that there will not be any shortage of liquidity in the financial system. This is very reassuring, particularly when there is semblance of instability in the financial markets. We could not have a better monetary policy."

Shishir Baijal, chairman and managing director, Knight Frank India, said the status quo by RBI will provide a temporary relief to the home buyer sentiment and support the festive season demand.