The Reserve Bank of India kept interest rates on hold at 7.50% on Tuesday, choosing to wait longer to assess inflationary pressures before making its next move, and to give banks more time to adjust lending rates to reflect previous rate cuts.
Most of the 40 economists surveyed by Reuters had expected the Reserve Bank of India (RBI) to keep the key lending repo rate unchanged.
The RBI said in a statement after its policy review that it would maintain an "accommodative stance", but also cited risks, raising some uncertainty about when the central bank would cut interest rates next.
Governor Raghuram Rajan did not expect RBI policy to be blown off course by the prospect of the Federal Reserve raising US rates. Whereas higher US interest rates are expected to lead to capital outflows from some emerging market economies, the Indian rupee has remained firm against other currencies thanks to strong inflows.
"At this point... we feel we are adequately buffered. That is not going to be the key factor in determining our monetary policy stance going forward," Rajan said.
# RBI keeps repo rate steady at 7.75%.
# Reiterated its target of 6% CPI by January 2016.
# Sets a new target of 4% by the end of 2017/18, the midpoint of the CPI range.
# RBI to allow Indian corporates to raise external commercial borrowings through rupee debt overseas.
RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL, MUMBAI:
"A predictable policy with no surprise as such. Even if it has maintained status quo on monetary measures, it has announced a few growth-suppportive structural measures to facilitate long-term funding by banks to infrastructure to improve policy transmission. The RBI's year-end inflation forecast supports our earlier prediction that one more rate cut of 25 basis points is in the offing around June 2015."
KILLOL PANDYA, SENIOR FUND MANAGER, LIC NOMURA MF ASSET MANAGEMENT, MUMBAI
"It's a wait and watch policy while keeping the positive stance intact. The governor wants earlier 50 bps cuts to percolate to the economy. He is waiting for other stakeholders to do their part including government to remove supply side bottlenecks and banks that still need to do transmission of policy."
KUMAR RACHAPUDI, FIXED INCOME STRATEGIST, ANZ BANK, SINGAPORE:
"The RBI kept all rates on hold and said that future policy action will be contingent on transmission of lending rates into the real economy as well upcoming data. I still think we need more accommodative liquidity conditions in the next six months to improve transmission as well as see higher lending growth. We expect the OIS curve to steepen. Look for 2s5s to move towards +25 basis points from current -12 basis points".
SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI:
"As expected the RBI maintained a status quo with a clear line of communication with regards to further monetary easing. Though the inflationary situation and government measures to combat supply side effects have started showing signs of improvement, the realization of the same seems to be a medium- term affair. Further the key to a likely 25 bps cut would be dependent on lending rate revision by the bankers, provided both the above mentioned measures progresses well in the right direction."
R SIVAKUMAR, HEAD OF FIXED INCOME, AXIS ASSET MANAGEMENT:
"Policy will remain data driven. For the rest of the year, one can expect 25-50 bps cut, but timing of the same is a tough call. Changes in bond markets are quite positive.
"The RBI now expects primary dealers to offer liquidity in semi-liquid government securities, which should improve the structure in bond markets. Changes on external commercial borrowings for corporates would also have a positive impact."
ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, NEW DELHI:
"I am a little disappointed as I was expecting a rate cut. But the way policy is conducted these days all the rhetorical language doesn't mean much and it's entirely data driven. It's quite possible that we get a nice retail inflation print and the RBI would move. One critical thing that RBI has said is to wait for the impact of its front-loaded rate cuts on bank lending rates. I think that will happen very soon and if data is supportive of a rate cut we might see one between policies."
RADHIKA RAO, ECONOMIST, DBS, SINGAPORE:
"Benchmark rates were left unchanged on concerns over near-term sticky inflation. Calls to lower the cash reserve ratio to aid policy transmission were meanwhile left unanswered, as we expected.
"While a lower CRR might have eased liquidity conditions without straining banks' interest margins, its uncertain whether that would have been enough to trigger cuts in base lending rate cuts or stoked credit growth. As far as policy transmission is impaired due to weak credit demand and concern over banks' asset quality, infusion of additional liquidity might not do the trick. Marginal impact on the base rate during the 2012-13 rate cutting cycle also does not set an encouraging precedent."
India's benchmark 10-year bond yield rose 4 basis points to 7.77% after RBI kept rates unchanged at its policy review. The NSE index declined 0.4% and the NSE bank index fell as much as 1%. India's one-year overnight indexed swap rate rose 5 bps to 7.50% after the policy.
# Growth in India's pivotal services industry lost some momentum in March as input prices rose at the fastest pace in nearly a year, a business survey showed.
# RBI chief said on Thursday the country's push to build infrastructure should not come at the expense of financial stability, adding banks already had too much exposure to the sector.
# Manufacturing growth accelerated in March after a jump in demand even though firms pushed up prices at the fastest rate in four months, a business survey showed.
# India's April-Feb fiscal deficit at Rs 6.03 trillion, according to the government.
# The RBI relaxed rules for foreign investors in exchange-traded currency derivatives by increasing the trading limits allowed without an underlying exposure for the USD/INR pair to $15 million per exchange from $10 million earlier.
# Wholesale prices declined at a much faster-than-expected pace of 2.06% on year in February, their fourth straight monthly fall, on the back of plunging global oil prices, government data showed.
# Consumer inflation edged up in February for the third straight month, mainly driven by food prices, underscoring the risk of a rebound in inflationary pressures from rising commodity prices.
# India's industrial output growth accelerated to 2.6% in January, mainly driven by growth in the capital goods sector, government data showed.