Lower Inflation projections raises hope for rate cuts going ahead: Angel Broking

Mr.Siddharth Purohit (Sr. Equity Research Analyst- Banking, Angel Broking) on Second Bi-Monthly Monetary Policy: “The RBI has left the key rates unchanged in its 2nd Bi-Monthly monetary policy. While the MPC has kept a neutral stance on the monetary policy, the under tone was less hawkish; the lowering of inflation projections indicates that there is still a room for rate cut in the coming policy meetings. While the REPO rate was kept unchanged, on a positive side the RBI has cut the SLR requirement by 50 bps which should allow more liquidity at the end of banks.

In the 1st Bi-Monthly monetary policy in April 2017, the RBI had indicated that inflation could remain at 4.5% in 1HFY18 and gradually rise to 5% in 2HFY18. However, the CPI inflation for April 2017 saw a sharp drop to 2.99% vs. 3.89% in March 2017; this seems to have resulted in the RBI projecting a lower inflation going ahead.

On the growth front, the RBI has revised its GVA projections by 10 bps to 7.3% for FY18; however, it has maintained that the process of remonetisation will help in picking up the discretionary spending fuelling the growth.

In another key announcement, the RBI has reduced the risk weightage on home loans above Rs 75 lakhs to 50% from earlier 75% and in addition to this, the standard asset provisioning on home loans has been reduced to 25 bps from 40 bps. We had been positive on the housing finance space in India and the current measure of lower risk weightage and lower provisioning requirement should bring in higher growth for the sector in the quarters to come.”