The RBI was widely expected to hike the repo rate again in October monetary policy decision. And it didn’t. Before one could figure out why the RBI chose to hold rates, rupee rout had already begun. Amid all this, some strong reactions came from experts, who said that decision to hold the interest rate was a mistake or risky move.
Addressing the post-policy conference on Friday, RBI governor Urjit Patel pressed that the mandate of the central bank was inflation and not rupee, which was below the target of 4% in August. He, however, tried to calm the situation by saying that the change of stance from ‘Neutral’ from ‘Calibrated Tigethening’ was crucial as it took off any rate cut off the table.
Ajay Srivastava, Dimensions Consulting
Reacting to the decision, Ajay Srivastava said that he was in “absolute disbelief”. “I am in absolute disbelief; what’s happening at the regulatory front. With all due respect to the regulator but are they in the same world we are in? There is a bigger crisis at hand, the fixation on inflation targeting mandate is unbelievable”, he told CNBC-TV18.
Taimur Baig, Chief Economist, DBS Bank
A similar reaction came from Taimur Baig, who called it a mistake. “It was a mistake. The world is going through a major recalibration in terms of monatey policy and India does not live in a vacuum,” Taimur Baig told CNBC-TV18, referring to hawkish outlook by the US Fed.
Abheek Barua, Chief Economist, HDFC Bank
“This is a risky move by the RBI since the market was positioned for a rate hike, purely as a rupee defence… A narrow focus on inflation targets perhaps not desirable in the middle of a financial crisis,” Abheej Barua said.
Upasana Bhardwaj, Senior Economist, Kotak Mahindra Bank
“The status quo decision along with a slight downside revision to inflation comes as a surprise given the sharp upside risks to the inflation trajectory in the months ahead on the back of elevated crude oil prices and the weaker rupee,” Upasana Bhardwaj said.
“We believe inflation is expected to overshoot RBI’s estimate in 2H (3.9-4.5%) by 20-30bps. Additionally, tightening global financial conditions may further weigh on Rupee. We continue to expect 25-50bps of rate hikes in the rest of FY19 to ensure financial stability amid global and domestic headwinds,” she added.
Rating agency CRISIL
“The decision to stand pat must have been a tough one, for going by the consensus view in the market, a rate hike was almost a given, considering the macroeconomic pressures. Without a doubt, the double whammy of rising oil prices and weak rupee have increased the upside risk to inflation
since the last policy meet,” CRISIL said.
The RBI on Friday kept the repo rate unchanged at 6.5% after two back-to-back 25 basis points rate hike in June and August while changing the stance to ‘Calibrated Tightening’ as there were upside risks to inflation due to volatility in crude oil prices. After the decision, the rupee breached 74 vs dollar mark within minutes, before paring some losses at close. Sensex also ended about 800 points lower at Friday’s close.