Analysts on Wednesday welcomed the status quoish policy stand of the Reserve Bank saying given the flux situations in the domestic and global markets, this was the most prudent stance it could adopt.
The Reserve Bank Governor-led Monetary Policy Committee unanimously voted to leave the policy rates of repo and reverse repo unchanged at 6.25 per and 5.75 per cent respectively.
“In a situation of flux — both locally as well globally, the prudent policy stance should be status quo. This is exactly what RBI did today in line with our view expressed earlier,” India Ratings principal economist Sunil Kumar Sinha said in a note.
Global situation post-Brexit, Donald Trump becoming the president elect of the US, and referendum defeat of Renzi in Italy has created a substantial geopolitical uncertainty, he added.
It can be noted that as the Fed is expected to raise the policy rates at the next meeting, it has resulted in capital flight from emerging markets putting significant pressure on the rupee. Compounding the matter is the uptick in crude prices, which will have implications for inflation, he observed.
In a note, Japanese brokerage Nomura said the MPC decision to keep the repo rate unchanged has been a surprise as a vast majority of marketmen, including the brokerage itself, were expecting a 25 bps rate cut.
“Despite the surprise today, we believe the decision to stay put is a prudent one. We also expect demonetisation to hurt short-term activity, but we do not see any medium-term damage, as it will only result in wealth redistribution, and not much wealth destruction,” it said.
Kuntal Sur of PwC India attributed the status quo policy stance to the global factors like stronger dollar, possibilities of a rate hike by the US Fed, hardening of oil prices which have negative implications on inflation.
On the withdrawal of the incremental 100 per cent CRR, he said it will lead to liquidity stabilisation, which “may force banks to pass on some rate cuts to consumers”.
Naresh Makhijani of KPMG India said, “The governor has taken a visionary approach and any action on the MPC front has been postponed to a future date till the economy recovers to its normal phase after absorbing the demonetisation shock.”
Rate-sensitive scrips like Banks, auto, realty slide
Bank, realty and auto stocks on Wednesday fell as much as 3 per cent after the Reserve Bank surprisingly kept short-term lending rate unchanged at 6.25 per cent. Shares of Bank of Baroda plunged 2.71 per cent to settle at Rs 157.85, followed by PNB with a fall of 1.94 per cent to Rs 131.70 and SBI 1.47 per cent to Rs 255.35 on the BSE.
Other laggards were: ICICI Bank 1.05 per cent, Federal Bank 0.29 per cent and Yes Bank 0.28 per cent. Accordingly, the BSE bank index settled at 20,849.49, down 1.07 per cent. Among realty scrips, NBCC closed for the day at Rs 231.85.