December 5, 2018 / 9:26 AM / 5 days ago

INSTANT VIEW 3-India central bank keeps rates unchanged, as expected

Dec 5 (Reuters) - India’s central bank kept interest rates unchanged at a policy meeting on Wednesday to offer support for an economy that has lost some momentum, in a decision that was widely expected as inflation has eased significantly.

The monetary policy committee kept the repo rate unchanged at 6.50 percent as predicted by 64 of 70 analysts in a Reuters poll. The central bank also retained its ‘calibrated tightening’ stance as expected.

All six members of the MPC voted to keep the rates on hold.

COMMENTARY

SHILAN SHAH, SENIOR INDIA ECONOMIST, CAPITAL ECONOMICS, SINGAPORE

“The decision appears to have been driven in part by the recent weakness of headline inflation (which has remained below the RBI’s 4.0 percent target for three consecutive months) as well as the sharp fall in global oil prices in the last few weeks.

“We think that the tightening cycle still has a little further to run.”

ABHIMANYU SOFAT, HEAD OF RESEARCH, IIFL SECURITIES LTD

“The reduction in inflation forecast to 2.7-3.2 percent should have ideally lead to lesser hawkish monetary policy.

“As the shift in policy stance was done in the last meeting, it was difficult for the RBI to reverse the same. If one sees continued benign data on inflation front, then one can hope for increased liquidity from RBI going forward to support credit growth.”

PRITAM DEUSKAR, FUND MANAGER, BONANZA PORTFOLIO, MUMBAI

“The positive outcome is they are allowing relieved measures to raise funds for NBFCs along with GDP forecast of 7.4 percent. This indeed is very positive for the market.”

SHASHANK MENDIRATTA, INDIA ECONOMIST, ANZ BANK, BANGALORE

“We might see the central bank change its stance to ‘neutral’ from ‘calibrated tightening’ in February.

“The RBI will definitely keep rates on hold for another 2-3 quarters, with the expectation that inflation will remain below 4 percent over the next 3-4 quarters, provided oil prices remain at current levels. RBI’s policy seems to be for a long pause at the moment. The issue they are focusing now is the sticky core inflation.

“Liquidity in the banking system has been almost persistently in deficit over the past few weeks. I think the RBI will step up open market operation purchases, and there needs to be some more liquidity injection by the RBI to support growth.”

DHANANJAY SINHA, HEAD OF INSTITUTIONAL RESEARCH, EMKAY GLOBAL FINANCIAL SERVICES LTD, MUMBAI

“When the headline numbers are being brought down, they (RBI) are looking for a scenario where the core inflation could actually remain high. Effectively, I think they will remain on hold for next three-four months before things get clearer.

“I think currency depreciation is definitely a worry, apart from volatility in crude prices. These are the factors that can actually change RBI’s projection in terms of inflation.”

AURODEEP NANDI, INDIA ECONOMIST, NOMURA FINANCIAL ADVISORY & SECURITIES (INDIA), MUMBAI

“We believe that the RBI is likely to change stance to ‘neutral’ in early 2019. We perceive that India is slowly entering into a low inflation, slowing growth quadrant. We could possibly see growth slowing down from here to even clocking below 7 pct by Q4 FY 19, with headline inflation remaining capped on the back of low food inflation, and reducing core momentum.”

“Our base case remains of a prolonged pause on repo rate.” (Reporting by Tanvi Mehta, Krishna V Kurup and Chris Thomas; Editing by Sunil Nair)

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