The Reserve Bank's decision to maintain status quo on rates Wednesday did not surprise bankers, who said the move was "pragmatic" and "accommodating" as also more in consonance with market expectations.
The RBI in its fifth bi-monthly monetary policy review kept the repo rate unchanged at 6.5 per cent. It also lowered the retail inflation forecast for the second half of the current fiscal to be in the range of 2.7-3.2 per cent.
Commenting on the RBI policy, SBI Chairman Rajnish Kumar said the decision to keep rates on hold was more in consonance with market expectations but the "policy guidance was a pleasant and pragmatic surprise".
He further said the significant downward revision in inflation projections and assurance of continued durable liquidity was most reassuring to market participants in terms of a stable and predictable interest rate structure.
B Prasanna ICICI Bank Head - Global Markets Group said the post-policy statement by RBI governor Urjit Patel emphasised the scope of change in the policy stance if upside risks to inflation do not materialise.
"Going forward, we believe the Monetary Policy Committee (MPC) is likely to remain on a prolonged pause. This also gives us confidence that the scope for a cut in rates becomes possible if realised inflation in the next few months were to confirm or undershoot the revised path forecasted by the MPC," Prasanna said.
Hopeful of future rate cuts, Standard Chartered Bank India CEO Zarin Daruwala said the MPC maintained its stance of calibrated tightening and it was heartening to note that the panel was ready to ease monetary policy to support the economy.
The sharp reduction in the inflation forecast accompanied by planned SLR cuts should result in lower costs for borrowers and the move to link Retail / MSME loans to external benchmarks should also result in better monetary transmission, Daruwala added.
On allowing non-resident entities to access the interest rate derivatives, Daruwala said it will help banks to better manage their risks, while SBI Chairman Kumar said the move will add depth to the market in terms of broad-based participation.
R K Gurumurthy, Head Treasury, Lakshmi Vilas Bank, said, "The focus in this policy has been on addressing the issues around structural and systemic liquidity. Growth forecast has been retained, possibly due to the belief that the output gap has closed and GDP growth should remain robust."
Yes bank Chief Economist Shubhada Rao said the status quo on repo rate was on expected lines, the substantial revision in inflation premise could warrant a prolonged pause on monetary policy rate amidst some upside risks coming from both domestic and global factors.
ICRA Managing Director and Group CEO Naresh Takkar said the status quo on monetary policy stance is in line with expectations, necessitated by the continuing uncertainty related to major components of the inflation outlook.
The linking of floating rates to external benchmarks will lead to a reduction in credit costs in the long run for retail and MSME sector, he said.
"Easing liquidity pressure in the banking system and accelerating the growth momentum has clearly been the focus of the Reserve Bank of India. Aligning the monetary policy committee's projection on inflation and growth trends will set the interest rate trajectory for 2019," said Rajiv Sabharwal, MD & CEO, Tata Capital.
(With inputs from agencies.)