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The Reserve Bank of India could turn to a monetary policy supporting growth after the US central bank delayed tapering of its fiscal stimulus programme.
Experts say, despite a status quo on the repo rate, the US tapering of QE (quantitative easing programme) delay will make way for a growth-oriented policy by RBI in its mid-quarter policy review on Friday. Most believe that the RBI could also roll back the liquidity tightening measures taken in July.
In its report, Bank of America Merrill Lynch said, “We expect RBI Governor Raghuram Rajan to partially roll back July tightening measures after the US Fed unexpected deferred tapering. Our US economist continues to expect the Fed to taper December onwards. This reprieve for rupee should provide the RBI space to support growth. Against this backdrop, we expect the RBI to reduce the MSF (marginal standing facility) rate by 50 bps to 9.75 per cent.”
Alternatively, the RBI could resume open market operations to the tune of Rs 1,20,000 crore by March to boost deposit growth to support loan demand. Or, it could raise the cap on LAF (liquidity adjustment facility) repos back to, say, 1 per cent of bank book from the current 0.5 per cent to ease liquidity conditions, the report said.
According to Indranil Pan, Chief Economist, Kotak Mahindra Bank, “No movement from Fed, expect the same from the RBI. This will lead the RBI to maintain the status quo on policy rates on September 20. It can, however, relax operational restriction on the CRR side to provide banks with some leeway.
There is likely to be some positive outcome for the Rupee with the US Dollar weakening due to deferment of tapering. This provides some breathing space for domestic policy makers to address the key issues of current account deficit and fiscal,” he added.
On the repo, we still lean towards a no-change stance, as the weaker currency and firm commodity prices have fed through the WPI inflation and retail inflation holds above elevated 9.5 per cent. In addition, recent volatility highlights that the rupee will remain vulnerable, said Radhika Rao, Economist, DBS.
Source: thehindubusinessline
Experts say, despite a status quo on the repo rate, the US tapering of QE (quantitative easing programme) delay will make way for a growth-oriented policy by RBI in its mid-quarter policy review on Friday. Most believe that the RBI could also roll back the liquidity tightening measures taken in July.
In its report, Bank of America Merrill Lynch said, “We expect RBI Governor Raghuram Rajan to partially roll back July tightening measures after the US Fed unexpected deferred tapering. Our US economist continues to expect the Fed to taper December onwards. This reprieve for rupee should provide the RBI space to support growth. Against this backdrop, we expect the RBI to reduce the MSF (marginal standing facility) rate by 50 bps to 9.75 per cent.”
Alternatively, the RBI could resume open market operations to the tune of Rs 1,20,000 crore by March to boost deposit growth to support loan demand. Or, it could raise the cap on LAF (liquidity adjustment facility) repos back to, say, 1 per cent of bank book from the current 0.5 per cent to ease liquidity conditions, the report said.
According to Indranil Pan, Chief Economist, Kotak Mahindra Bank, “No movement from Fed, expect the same from the RBI. This will lead the RBI to maintain the status quo on policy rates on September 20. It can, however, relax operational restriction on the CRR side to provide banks with some leeway.
There is likely to be some positive outcome for the Rupee with the US Dollar weakening due to deferment of tapering. This provides some breathing space for domestic policy makers to address the key issues of current account deficit and fiscal,” he added.
On the repo, we still lean towards a no-change stance, as the weaker currency and firm commodity prices have fed through the WPI inflation and retail inflation holds above elevated 9.5 per cent. In addition, recent volatility highlights that the rupee will remain vulnerable, said Radhika Rao, Economist, DBS.
Source: thehindubusinessline
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