Comments on the RBI Credit policy on 03 February, 2015 by V Vaidyanathan, Chairman Capital First Limited.
āFocus is more on structural reformsā
Ā As expected there is no change in the policyĀ rates inĀ the early Feb policy. There was no incremental data for the RBI to take a decision, whether on inflation or GDP growth. Also, RBI has once again showed that they will be very deliberate in process of rate easing. They will continue to watch for Fiscal Deficit numbers in the budget, and oil price movements that can have an impact on the macro. This gives great comfort that the direction is set, and the process is underway. As far as transmission is concerned, in my estimate, many banks will surely cut base rates within 3 months as the Debt markets have already dropped by 100-150 bps in the last 3 months, and banksĀ are competing with the money and debt markets.
Ā I am happy that SLR reform is continuing as beforeĀ and SLR has been reduced from 22% to 21.5%, as this will ensure that over time, bond yields will be truly reflective of market fundamentals, and the government will not have a steady pipe of cash from captive lenders alias banks. The RBI is also concerned with the global QE wars and its impact on the rupee, so they will continue to intervene either way if required to smoothen, but not to work on a predefined rate for the rupee. Overall, it is a measured and responsible approach to interest rates as always, with more focus on structural reforms (Corporate Debt accounting for management change, enabling environment for conversion of debt to equity, reduction in SLR).
