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FIIs Views on RBI Monetary Policy

April 21, 2010

Here are the views of various influential Foreign Institutional Investors on RBI’s monetary policy,

Goldman Sachs said,

We think the policy statement has correctly analysed inflationary risks which we have been flagging for some time now. Today’s policy action suggests that the RBI prefers a more gradual approach to rate hikes. We continue to think the RBI will deliver a total of 150 bp of policy rate hikes in 2010

The RBI pointed out both demand and supply-side causes of high inflation. It noted higher food and global commodity prices, pricing power returning to corporates, and pressure on prices from higher excise and customs duties. The RBI mentioned uncertainties on the inflation front going forward due to a structural shortage of certain food items, lack of clarity on monsoon rains, volatile crude prices and increasing demand-side pressures.

It issued its March 2011 WPI inflation forecast of 5.5%. …it is more important to look at average inflation, which we think will be 7.5% in FY11. The RBI also released its GDP growth forecast for FY11 to 8% with an upward bias. We are forecasting GDP growth of 8.2% in FY11.

JP Morgan’s Views are,

JPM expectation was a 50bps hike in both CRR and Repo/Reverse Repo rate. This was small a positive surprise. Impact on lending and deposit rates limited. Bond yield relief to be short lived. Further incentive for Infrastructure financing. New banking licenses – Report by July-10.

BOFA Merrill said,

The main focus of the policy has shifted to containing inflation. We (our economist) expect further CRR hikes of 50bps and repo rate hikes of 100bps through FY11. RBI pegged FY11 GDP growth at 8% and loan growth at 20%; in line with our estimates. Impact on earnings from CRR hike is <1%. Boost for infra based lending. No MTM hits on infra loans; Infra cos may also be included. We believe the policy measures should, medium term, help facilitate more infra based lending and could provide upside to our 20% loan growth estimates.

Kotak Securities of India said,

RBI administered a dose of tightening in line with the market expectations and milder than our more aggressive call. We believe that the RBI’s policy remains quite accommodative even after this dose of tightening. It would be a long while before rates can be brought to near-neutral levels. The gradualist approach may help growth in the near term and keep India closer to the global interest rate cycle; however, this does pose some risks ahead.

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