RBI in a pause mode.. - Angel Broking

Views of Mr. Siddharth Purohit (Sr. Equity Research Analyst- Banking, Angel Broking) on First Bi-Monthly Monetary Policy:

"As on expected line, the RBI dished out a HOLD on the repo rate at 6.25% though it raised reverse repo rate by 25bps to 6%. It has also bought down the MSF rate (Base rate) by 25bps to 6.50%. The reverse repo hike is aimed at draining out excess liquidity which had piled up in the banking system post the demonetisation saga. The raising of reverse repo should be constructed to be marginally positive for Banks as they can park the excess liquidity at their behest and earn the additional 0.25% interest from RBI. With this move, RBI has narrowed the policy rate corridor to 50bps with the sole intention of managing the excess liquidity glut. RBI has given its guidance towards the growth outlook for the economy and expects GVA to bounce back to 7.4% in FY18 from 6.7% in FY17. RBI also permitted Banks to invest in REIT's and InvIT's and though further clarity is sought on the mechanism in which this shall be adopted, it can still be sentimentally positive for listed realty and infrastructure players. The other concerning point for RBI is the stickiness in core inflation and believes the shift to 'neutral' from 'accommodative' stance undertaken in the February policy was with the premise of inflation remaining at elevated levels with the added risk of a weaker monsoon outlook for the coming fiscal. RBI is of the belief that CPI inflation can hover around 4.5% in the first half of this fiscal and around 5% in the second half of the current financial year. With this policy move, RBI in our opinion shall monitor further data-points on credit growth, Inflationary numbers, panning out of monsoons, Bad asset resolution for the banking industry, Federal reserve actions and general global macro economic trends before they take a move in either direction on the rate front."

Source : Equity Bulls

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