Nifty99000 100%

Sensex99000 100%

Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
RSS

News

Analysts say rates to remain on hold for at least six months

Author: PTI/Friday, April 6, 2018/Categories: Regulatory

Analysts say rates to remain on hold for at least six months

Mumbai - Analysts at credit rating agencies have ruled out monetary easing at least in the next six months despite the Reserve Bank sounding optimistic on inflation and maintaining a neutral stance on its future policy moves.

Announcing the first bi-monthly policy for fiscal 2019, the central bank today left the policy rates unchanged at 6% citing elevated inflation worries in the first half of the fiscal but a comfortable print in the second half.

"We expect the repo rate to remain unchanged over the next six months unless upside risks to the MPC's inflation forecast materialise," Crisil said in a post-policy note.

Icra also echoed similar views saying while the status quo in the policy in line with expectations, saying, "the balance of risks and outlook suggests a low likelihood of a change in the repo rate or monetary policy stance until there is greater clarity on the extent of impact of MSP hikes and the monsoons on the inflation trajectory, which is unlikely to emerge in the next few months."

Even with the neutral stance, there has been a defacto interest rate tightening in the banking system, noted Crisil and said the risk-free rate in the economy, the 10-year government security yields, jumped 40 bps this year so far on fears of fiscal slippages.

"But this has corrected now due to a trimmer borrowing programme announced by government for first half also due to the MPC holding the rates," Crisil said.

However, India Ratings noted that the tone of the policy commentary suggests that despite several uncertainties surrounding the inflation trajectory, "RBI is not in a hurry to change its neutral stance but given the many uncertainties cited by RBI on inflation "we believe that RBI may remain in a pause mode in the near term so far as policy rate is concerned."

On inflation, Crisil said between the February review and now, some inflationary pressures have surfaced. Global crude oil prices have continued to rise since then and are now nearly 27% higher on year. In fiscal 2019, Crisil expects prices to rise another 13%.

Similarly, metal prices are moving up and given the improving domestic demand, manufacturers are likely to pass on higher input prices to consumers. There could also be pressure on food inflation if elements of MSP hikes are implemented.

All this will need monitoring in the coming months.

Explaining the automatic tightening of interest rates, Crisil said fiscal pressures drove up the yield on the 10-year bonds to 7.62% by March, from 7.18% in December but since then softened now.

Banks, too, have been raising their lending rates led by two factors, an expected drying up of surplus liquidity from the system as RBI aims to go back to maintaining neutral conditions, and a return of demand for bank credit from corporates as interest rates in the bond market firm up.

Around eight banks have already raised their marginal cost of lending rate (MCLR) by 10-20 bps in 2018 so far, indicating that in spite of the repo rate staying unchanged, banks are pricing an increase in interest rate. However, with today's hold, the upside risks to lending rates has reduced, Crisil added.

Print Rate this article:
No rating

Number of views (88)/Comments (0)

rajyashree guha

PTI

Other posts by PTI
Contact author

Leave a comment

Name:
Email:
Comment:
Add comment

Name:
Email:
Subject:
Message:
x

Videos

Ask the Finapolis.

I'm not a robot
 
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
 
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest
 
 

Categories

Disclaimer

The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free