RBI rate cut brings market cheer... :: ICICI Securities, report

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
RBI rate cut brings market cheer...
The Reserve Bank of India, in a surprising but long awaited decision, cut
the repo rate by 25 bps to 7.75% from 8% The repo rate cut was widely
anticipated to be announced in the RBI policy meeting on February 3,
2015. The rate cut decision, therefore, came ahead of market expectation.
This rate cut by the RBI weights more as it now marks the change of the
monetary policy stance and beginning of the easing interest rate cycle.
The RBI has repeatedly said that once the policy stance shifts it will be a
definitive shift and further actions will be consistent with the new stance.
We continue to maintain our view of 100 bps repo rate cut by the RBI in
calendar year 2015 and, therefore, expect another 50-75 bps rate cut
throughout the remainder of the year.
Rate cut rationale
RBI cited “Crude prices, barring geopolitical shocks, are expected to
remain low over the year. Weak demand conditions have also moderated
inflation excluding food and fuel, especially in the reading for December.
Finally, the government has reiterated its commitment to adhering to its
fiscal deficit target.
These factors have significantly reduced the momentum of inflation,
compensating for the widely anticipated ending of favourable base
effects. Households’ inflation expectations have adapted, and both nearterm
and longer-term inflation expectations have eased to single digits for
the first time since September 2009. Inflation outcomes have fallen
significantly below the 8% targeted by January 2015. On current policy
settings, inflation is likely to be below 6% by January 2016.
These developments have provided headroom for a shift in the monetary
policy stance”
Our view
This outside policy rate cut has given a much needed boost to market
sentiments.
Inflation trajectory is likely to remain comfortable in the coming months
given the stable currency situation and soft crude oil prices. The current
easing interest rates cycle has more cuts by the RBI in the offing. This rate
cut action also implies that the RBI now has strong levels of conviction of
comfortably meeting its 6% target by January 2016.

LINK
http://content.icicidirect.com/mailimages/IDirect_RBIActions_Jan15.pdf