A day after the RBI decided to go for a widely-expected status quo in rates, analysts on Friday said another cut is not on the horizon, but getting liquidity to neutral levels will dominate actions going forward. With the Reserve Bank commentary stressing on all options being open, a section also felt that an increase in cash reserve ratio (CRR) may be in the offing. “The key message from the RBI’s monetary policy meeting was that it was committed to adhere to its stance of neutrality on liquidity and moved towards correcting distortions in interest rates,” HDFC Bank’s research team said in a note. Singaporean bank DBS said moving liquidity back to neutral ‘will be priority’ for the RBI.
Japanese brokerage Nomura said there can be a one percentage point cut in the cash reserve ratio (CRR) which is the amount of deposits parked with the central bank in the second half of 2017 to tackle the liquidity glut. A bulk of the focus in the commentary was on the liquidity, including a plan to bring it to neutral as per a process which started last year and also how to manage the current excess liquidity of over Rs 4 trillion.
The RBI has made a pitch for the special deposit facility (SDF) to suck out the excess liquidity and is in talks with the Government to introduce it. However, on the crucial question on the way forward, the view was divided among the analysts with many saying that we should not expect any cuts while some expressing some optimism.