Comments of Mr. Partha Ray, CIO, Shriram Asset Management Co Ltd on RBI Monetary Policy

This augurs well for the economy and growth as the lower rates are expected to spur investments and enhance demand to provide impetus to the manufacturing sector. A lot however depends on the transmission of the rate cut by 125 bps in the calendar year by Banks as they determine their appropriate stance in ALCOs based on their respective cost of funds and expected credit growth.    

RBI has taken this step after deliberating prudently on factors that decide in favour of a rate cut or otherwise, In this policy announcement RBI has recognised that the economy needs a boost (economic growth is slowing down and revised growth estimate of 7.4% )and hence an accommodative stance is necessary. The inflationary pressures has eased and the inflationary expectations are within RBIs target inflation level of 6% by January 2016. The currency has not taken a big hit despite tremendous global volatility in comparison to other emerging markets currencies and therefore circumstances are noiw conducive for a rate cut.

In our view this is certainly likely to act as a catalyst particularly in the rate sensitive sectors in the near to short term. Capital investments and gross capital formation may still be some time away as producers gauge and assess demand and fine tune capacity expansion to be in step with the same.

The steep rate cut is certainly going to be well received in the capital markets and real sectors of the economy.