Naina Lal Kidwai, FICCI President:
“The increase in the repo rate by 25 basis points has come as a surprise to us. The RBI has admitted that industrial activity continues to remain sluggish and even consumption demand is now starting to weaken in the economy. In such a scenario, a positive signal by way of a cut in the repo rate, which FICCI has been advocating for long, would have helped perk up sentiments.
“There has been an upward pressure on inflation, but this is largely due to the spikes seen in prices of food articles. Dealing with such inflation calls for structural changes in the supply chain of food products as well as improving productivity through higher agri-investments. Further, with Rupee on the mend, we could see the pressure from imported inflation coming down in the days ahead. Given this situation and the concerns over inflation, RBI could have maintained the repo rate at the current level even if the case for a downward revision was not acceptable as per its own analysis."
"This increase in the repo rate is likely to impact the interest rates of car and automobile loans further... The industry had been hoping for a recovery through the ensuing festive season, anticipating an improvement in markets. But this move comes as a dampener. The repo rate will also downgrade the sentiments of consumers struggling under the burden of high EMIs.’
"The ideal move would have been to initiate measures that would enthuse the market participants, boost investor sentiment and bring confidence back in the economy."
HDFC Bank Research:
"Despite the market’s extreme initial disappointment with the mid-quarter monetary policy announcement, we are actually quite pleased with it. To explain this somewhat contrarian reaction, let’s put things in perspective.
First, with the series of liquidity tightening and rate raising measures introduced from July 15, the marginal standing facility rate (MSF) -- raised by 200 bps to 10.25 per cent -- had become the operating rate leading to an extreme inversion of the yield curve. Our apprehension that while these measures were at that time justified as a defence against INR depreciation these would remain embedded and now be justified as an anti-inflation defence. The decision to pare this along with other measures such as the reduction in daily CRR balances would bring considerable relief to the short end of the yield curve and transmit to lower rates. This normalization will continue going forward and bring further relief to the short end. We certainly don’t see this as anti-growth in any sense.
"Let us re-emphasize the fact that the repo rate had ceased to become the operating policy rate and unless there are changes to the cap on repo borrowings of around Rs 38,000-40,000 crore, the hike in the rate might be somewhat superfluous. While the market seems to have been spooked by this the hike, for us, seemed like a natural reaction to the prospect of higher inflation and potential depreciation of the INR. Thus Rajan has established his credentials as a responsible central banker sensitive to critical macroeconomic vulnerabilities and not a cavalier cheerleader for growth. The emphasis, in his press conference, on focusing on long-term inflation and not just one or two high inflation prints is also heartening."
Dinesh Thakkar, CMD- Angel Broking:
“The RBI’s policy gives a couple of interesting signals. First, very clearly the RBI found more headroom due to the INR stability and hence positively was able to roll back part of the MSF hikes. So, short term interest rates are likely to come down proportionately and banks are unlikely to need to hike their base rates at the beginning of 3QFY14 as there will be some relief on their cost of funds. But at the same time, US Fed tapering being postponed notwithstanding, the RBI is more worried on domestic inflation than it was a couple of months back.
"To that extent, the RBI is signaling that eventually interest rates may not reverse all the way back to where, before the 15th July measures to defend the rupee, but possibly 25bps higher in order to anchor inflation. So, there are some near-term respites but the worries on inflation and growth strike a note of caution for the outlook for cyclical sectors in the economy.
"Going forward, the direction of exchange rates, export growth, investment rate in the economy and the inflation and growth expectations will continue to play a role in the overall outlook for markets.”