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ICRA Comment on RBI's Bi Monthly Policy announcement

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Sept 30, 2014: Naresh Takkar, MD & CEO, ICRA Ltd Comment on RBI's Bi Monthly Policy announcement:

The status quo in major policy rates seen in today's policy is likely to remain the norm in FY15.

The permission to Banks to include upto 5% of NDTL within mandatory SLR in the calculation of Level 1 High Quality Liquid Assets is a positive measure for Banks that doesn’t dilute macro-prudential norms.

While the forecasted decline in kharif output would keep food prices firm, moderating commodity prices have improved the likelihood that CPI inflation would be contained below the RBI’s interim target of 8% in January 2015. However, a further reduction in CPI inflation towards the medium-term objective of 6% by January 2016 requires a virtuous interplay of various global and domestic factors as well as some tough Government decisions in the coming months. 

The Central Bank is likely to stick to a firm anti-inflationary stance over the remainder of FY15, to rein in expectations and impart credibility to its inflation targets. At present, we expect that the RBI may embark on a rate easing cycle in Q1FY16, with Repo rate cuts of upto 50 basis points, if the monsoon forecast for 2015 is normal and exchange rate volatility remains contained.

While the RBI continues on its path to strengthen the improve the resilience of the domestic financial sector and also deepen the bond market in the country, we await detailed / final guidelines related to New / Differentiated banks and NBFCs over the next two months as it could potentially alter the landscape in the local markets.