Economists hail RBI for rate defiance

Economists and analysts today described the RBI decision to leave the policy rates unchanged as "prudent" and opined that sticky inflation should remain the primary concern of the Central bank.

Nomura India Chief Economist Sonal Varma said the high deficit numbers, coupled with headline inflation, have tied the hands of RBI to ease monetary policy at this juncture.

"Given the political pressure on RBI to cut rates at this meeting, we see today's decision as prudent and fortifying the RBI's inflation fighting credibility".

Ernst & Young India national leader for global financial services Ashvin Parekh said "inflationary pressures continue to have a stronger effect on the monetary policy, forcing the regulator to persist with wait and watch policy".

Parekh said the fact that RBI revised its year-end target for inflation to 7.5 per cent and lowered GDP growth forecast for FY13 showed that persistent inflationary pressures remain in the economy and the current growth inflation dynamics is likely to continue for another quarter.

Rating agency Crisil, in a note, said despite revising GDP forecast sharply downwards to 5.8 per cent (from 6.5% earlier), RBI chose to refrain from reducing the repo rate because the upside risks to inflation remain due to high rural wages, inadequate supply response in food articles and temporary pressures from administered fuel price revisions.

Naresh Takkar, head of another rating agency Icra, said the guidance given by the apex bank makes it clear that one can expect cut in the repo rate in the next quarter.

On the increase in provisions for restructured assets, he said the move is likely to put additional burden on the profitability of the banking system to the tune of 10 per cent of the annual pre-tax profits.

Barlcays analyst Siddhartha Sanyal described RBI's move to cut CRR as a token easing which should support sentiment in the near-term.

... contd.

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