The Reserve Bank of India (RBI) monetary policy committee has voted for a no rate cut. However the RBI has effectively given a kind of a rate cut. First, it has tweaked the repo and the reverse repo mechanism in such a way that banks may be forced to cut deposit rates because they have to put too much of idol money in the reverse repo window. Second, it has given banks a sop that they don't have to maintain Cash Reserve Ratio (CRR) on the amount of money given as car loans or home loans or MSME loans.
It has also announced a 1-year and 3-year repo whereby banks can borrow money from the RBI for 3-years or 1-year at 5.15 percent. This too can have an effect of cheap money for banks which they can give as cheaper loans for lenders or borrowers.
Therefore what is the expert view or what is the expert's verdict on this multi-faceted monetary policy that was just announced? To discuss this Latha Venkatesh spoke with Sonal Varma, MD & Chief India Economist at Nomura Financial Advisory & Securities India, B Prasanna, Head, Global Markets Group at ICICI Bank and Arijit Basu, MD at State Bank of India.
Prasanna lauded the RBI said, "This is a path-breaking policy. It is the demonstration of Reserve Bank of India's ability to really think out of the box because nobody in the market really expected this kind of a move coming in from Reserve Bank of India."
Prasanna further added, "Every bank will have to come out with some kind of proper estimate about what their next 14-day surplus is going to be and so to that extent whatever they are comfortable with, they will give out that funds to the Reserve Bank of India in the 14-day repo operations."
Basu too welcomed the move and said, "The long term LTRO is a very significant move and that could bring down the cost of funds. The initial market reaction of course is based on what is likely to happen but I think each bank including us will have to see how it actually plays out when it gets operationalised."
Varma said, "I do think it is an easing without a rate cut. I thought two things were quite important. One, despite the upward revision in inflation, actually the entire policy is about growth concerns and financial sector concerns. I thought it was quite important to signal that there is still room on monetary policy. So, I think in terms of communication, the MPC has clearly left the door open to more easing which I think is important from a signaling perspective, from a transmission perspective. The second aspect is how to enable actual transmission which is all these discussions that we are having around long term refinancing operation (LTRO), etc."