'Thank goodness, the RBI Governor has not panicked'

The Reserve Bank of India unexpectedly kept the country's policy interest rate on hold on Wednesday, despite calling current inflation too high, citing the prospect of easing retail prices and its concerns about the weak domestic economy.

The RBI had been widely expected to lift its repo rate by 25 basis points, but instead opted to keep the country's main lending rate at 7.75 per cent.

Rajeev Talwar, executive director, DLF LTD, Delhi

"I think this (the RBI decision to hold rates steady) is the first sign of recovery.

“Thank goodness the RBI Governor has not panicked.

“Let us see till February. Hopefully, if food stocks are released in the market, food inflation comes down and that will be the end of the cycle."

. . .

Navneet Munot, chief investment officer, SBI Funds Management, Mumbai

"A bit surprising given that they (the RBI) have been maintaining a hawkish stance and with the persistence of high inflation, markets were expecting a rate hike today, so no change in the repo rate comes as a surprise."

"Given the headline inflation, we still expect another rate hike.

“They have indicated they will act in between if needed. Maybe they will watch the inflation situation and the(industrial) output data closely.

“They could also be waiting for the meeting of the US Federal Reserve (later today)."

. . .

Sujan Hajra, chief economist, Anand Rathi Securities, Mumbai

"The pause was surprising given the sharp rise in both retail and wholesale inflation. Clearly, the RBI expects a sharp fall in inflation during December-February.

“It is also probably getting unnerved by weak growth and will also wait for the Fed action later on Wednesday.

“However, we do not see inflation fall significantly going ahead."

Phani Sekhar, fund manager, Angel Broking, Mumbai

"It is a calibrated policy based on the assumption that inflation in November was a one off.

“It also has a caveat that the RBI can act outside the policy too.

“A lot now depends on the next data reading or other evidence on inflation.

"Equities would react positively for the next few days.

“Markets are forward looking and would even try to extrapolate this into an end of rate hike cycle for the short term."

. . .

Rupa Rege Nitsure, chief economist, Bank of Baroda, Mumbai

"It is completely unexpected given the liquidity in the system as well as the inflation trajectory.

“I think it is just postponement of action, because the policy clearly says they (the RBI) may take action any time, even in the interim between two policies, if the situation warrants.

"They are saying this because they are waiting for food inflation to ease, because these spikes, according to them, were caused by temporary imbalances.

"We should be prepared for acute tightness going forward, given the kind of abnormal inflationary pressures the country is facing and I expect these pressures to continue.

“I feel there will not be any alternative but to reassert monetary tightening, which the next data point would guide."

Dariusz Kowalczyk, senior economist, ex-Japan Asia, Credit Agricole CIB, Hong Kong

"The RBI governor Rajan is losing credibility after his tough language expressing strong disappointment with high inflation last week.

“We expect INR to fall, but equities and bonds to rise."

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Market reaction

The benchmark 10-year bond yield fell as much as 15 basis points on the day to 8.76 per cent after the policy review.

The partially convertible rupee was trading at 61.81/82 per dollar versus its previous close of 62.01/02.

The benchmark BSE Sensex was up 1.1 per cent, while the Nifty rose 1.2 per cent.

Background

• Wholesale price index climbed 7.52 per cent in November from a year earlier, its quickest pace since September 2012, compared with 7 per cent in October, data showed on Monday.
• Data showed last week October's industrial production output shrank 1.8 per cent year-on-year, dampening sentiments after recent gross domestic product data had suggested the economy may have bottomed out.
• India's economy grew a higher-than-expected 4.8 per cent in the three months through September, helped by an uptick in agriculture and construction, government data showed last month.