The Reserve Bank of India (RBI) kept its key interest rate unchanged at 6.25 percent on Wednesday, as widely expected, while lowering projections for inflation and striking a somewhat less hawkish tone in a policy statement.
RADHIKA RAO, GROUP ECONOMIST, DBS
"The tone suggests they are not yet convinced that the fall in inflation is enduring, given risks from farm loan waivers and seventh pay commission. In essence, the RBI remains concerned that a rate cut at this juncture might need to be reversed out next year if inflation returns to the upper end of the 2-6 percent range.
"Our takeaway is that the central bank is likely to maintain status quo for now. The room for a rate cut is contingent on below-target 2Q inflation, which will be available by August review, or shallow bounce in 3Q numbers."
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK
"RBI keeping the rate unchanged is pretty much in line with what was expected. The SLR cut is in line with the roadmap which was provided earlier and it also frees up quantum for credit growth.
"We are seeing a significant cutback in inflation forecast. The monetary policy report is projecting a much lower inflation at 2-3.5 percent in H1 and 3.5-4.5 percent in H2. It is a significant cutback on inflation trajectory and it is a risk which is waning and should clearly pave the way for RBI to cut rates. We believe that a rate cut is in the offing in the next policy meeting."
DEVENDRA KUMAR PANT, CHIEF ECONOMIST, INDIA RATINGS & RESEARCH
"It appears more on the balanced side as neutral stance continues, although he's raised some red flags at the end."
"They are mildly hawkish."
"As of now, chances of rate cut are pretty low. What we have - the two elements are in the form on monsoon and second, how the GST will pan out. Although, the rates are decided keeping an eye on negative non-inflationary but short term supply bottlenecks can't be ruled out."
ANJALI VERMA, ECONOMIST, PHILLIPCAPITAL INDIA
"It's a reasonably dovish statement versus the reasonably hawkish statement in the last monetary policy.
What is happening is that earlier there were concerns on monsoon which now seem to be coming out normal. On GST, also, earlier there were concerns that it could be inflationary. However, now, incrementally there is a view that it could be neutral in nature. Lastly, on the seventh pay commission, yes, RBI has been concerned. But when I talk with people in the government they say that it may not have such a big impact as RBI is forecasting.
Considering that, I think, this new projection that RBI has given today could pan out. Therefore, one will have to see how the monetary policy stance could change going ahead depending on this inflation number."
HITESH JAIN, SENIOR RESEARCH ANALYST AT IIFL WEALTH & ASSET MANAGEMENT
"RBI's stance will be absolutely data dependent. I think the status quo will be intact for 2-3 months. Any policy move will probably happen by end of this calendar year."
"As long as the inflation is within RBI's range, we'll not see a policy change. But if inflation sustains at current corridor, we'll probably see a rate cut."
"They (RBI) have yet not gauged the impact of central pay commission."
"The recent slowdown like the note ban could be transient. Now, the economy is optimally remonetised. So I think we can come back to the old growth numbers of 7 percent in a quarter or two."
SUDHAKAR PATTABIRAMAN, HEAD OF RESEARCH OPERATIONS, WILLIAM O'NEIL INDIA
"There was no possibility of interest rate cuts at this point, as there is currently a lot of uncertainty surrounding GST implementation and geopolitical issues."
"We expect the RBI to cut rates in its next policy meeting in August, provided the monsoon progresses well, in line with Meteorological Department's forecasts, and inflation does not spike after GST rollout."
"We could see inflation rate going up marginally in H2 2017, depending on how the monsoon and GST implementation play out."
(Reporting by Mumbai and Bengaluru newsrooms)