Mumbai, Apr 5 (PTI) Bankers today welcomed the Reserve Bank’s decision to revise downwards the inflation projections for the current financial year and said the move will be a positive for the market.
In the first bi-monthly monetary policy for FY19, the central bank left the repo rate unchanged at 6 per cent.
On a positive note, which was lapped by the markers, the central bank revised downwards its CPI inflation for FY19 to 4.7-5.1 per cent in the first half from earlier estimate of 5.1-5.6 per cent. For the second half it revised down the same to 4.4 per cent from 4.5-4.6 per cent estimated earlier.
“More than the RBI decision to keep rates unchanged, the tone of the policy is a pleasant surprise for the market.
“The decision to revise downwards the inflation projections and upwards the growth numbers is the best one could have asked for,” State Bank chairman Rajnish Kumar said.
The RBI said GDP growth is projected to strengthen from 6.6 per cent in 2017-18 to 7.4 per cent in 2018-19 – in the range of 7.3-7.4 per cent in H1 and 7.3-7.6 per cent in H2 – with risks evenly balanced.
ICICI Bank managing director and chief executive Chanda Kochhar said, “the significant positive in the monetary policy was the downward revision of inflation projections.” The Monetary Policy Committee also recognized that the structural reforms undertaken by government and the pickup in credit growth are leading to a broad based cyclical improvement in the economy, she said.
HDFC Bank chief economist Abheek Barua said this was an unexpectedly dovish policy with the RBI highlighting inflation risks (oil, procurement prices, HRA for government employees) but at the same time revising their forecasts downward.
“If this is a permanent shift in the paradigm of inflation management from a singular focus on bringing long term inflation down to 4 per cent to an approach that is more supportive of growth, then the RBI might go for a long pause,” Barua said.
Bond yields that have rallied are likely to move down a little more. However, whether this is a transient bout of ‘dovishness’ or whether it will endure remains the key question, he added.
Bank of India managing director Dinabandhu Mohapatra said, “the policy reiterates RBI’s commitment to manage inflation at 4 per cent level, while taking care of real economy growth at the same time.”
Moreover, the intent of the policy seems neutral and sends signals for supporting growth in near-term, he added.
Yes Bank managing director Rana Kapoor said, “the growth baton is now firmly in government’s hands as it is actively facilitating the revival of private investments.” He said with improvement in momentum of the asset resolution process, growth appetite should get ploughed back.
With a view to develop a deep rupee interest rate swap (IRS) market that accommodates divergent participants, RBI today proposed to permit non-residents access to the rupee IRS market in the country and said the detailed draft regulation will be issued for public comments by the end of next month.
The SBI chairman said the broadening of the IRS market and encouraging trading in STRIPS are some changes which are positive developments.
The central bank also proposed to stipulate a minimum level of ‘loan component’ in fund based working capital finance for larger borrowers, to promote greater credit discipline among working capital borrowers.
Kochhar said the regulatory measures announced like the mandatory loan component in working capital financing is a step in the right direction.
“Allowing non-residents into swap markets and introduction of rupee swaps would deepen the domestic derivative market, while also aiding product development to enable better risk management by domestic entities,” she added.
This is published unedited from the PTI feed.