Reactions

Our Banking Bureau
30 April 2003

Mumbai: Sample some of the reactions of the Monetary and Credit Policy 2003-04 announced yesterday.

Resilience of Indian economy
India's economic fundamentals are good as shown in the credit policy announced by the central bank, and the bank's growth outlook is realistic. We welcome the credit policy. It is very, very good. It shows the resilience of the Indian economy and also that the macro fundamentals are good. The possibilities for growth in this year are quite good, the Reserve Bank of India's (RBI) gross domestic product (GDP) and inflation outlook were realistic and we hope the country would achieve 6-6.5 GDP growth in 2003-04 due to expectations of a better monsoon.
— S Narayan, finance secretary, ministry of finance, Government of India

Expect trickle-down effect
The interest rate measures announced by the RBI in the credit policy establishes a medium-term direction for the interest rates. The 0.25 per cent CRR cut should be viewed in light of the long term objective of 3.0 per cent while the 0.25 per cent cut in bank rate points towards the current interest rate scenario being sustainable over the medium term. Going forward we should see a trickle-down effect with lower lending rates across the banking sector with a high chance of a lagged impact on the deposit rates as well.
— Milind Barve, managing director, HDFC Mutual Fund

Inflation to come down
The bank rate cut at 0.25 per cent was lower than market expectation of 0.50 per cent. Post-policy, we have seen a 10-year bench mark gilt move up by 6 basis points to 5.94 per cent. Over the next few days we could see the benchmark paper hover around 5.95 per cent to 6.05 per cent. The immediate direction will be decided by inflation numbers and the first state government-borrowing programme to restructure old high-cost debt that may be announced by the RBI. Inflation numbers have been high in the recent past on account of high oil prices and truckers' strike. Oil prices have started easing and with truckers' strike over, we expect inflation numbers to be lower, thus going forward.
— Nandkumar Surti, head fixed income, JM Mutual Fund

Will boost economy
The credit policy will boost economy, improve liquidity and give a fillip to credit off-take. Dr Bimal Jalan, the RBI's suave governor, has carried forward his earlier vision and taken steps to solidify the Indian economy. We feel that investment in mutual funds still make sense, and investors can look at debt funds with a longer duration. Also the RBI governor stated that the softer bias towards interest rates would continue going forward and the RBI would provide adequate liquidity to meet credit growth and support investment demand. We, therefore, feel the chances of interest rates rising significantly are low.
— Pankaj Razdan, deputy chief executive officer, Prudential ICICI AMC

Prices may fall
We expect the debt market to be range-bound and the soft bias to continue (10 year G-Sec is likely to move in the range of 5.75-6.25 per cent). The prices could fall marginally from current levels, but investors should look at the time horizon for investment while entering the market rather than levels. While a significant one-way decline in interest rates is not likely, the market will still give opportunities to the patient investor.
— Dileep Madgavkar, chief investment officer, Prudential ICICI AMC