The US Federal Reserve decision to delay its plans to reduce monetary stimulus will give RBI Governor Raghuram Rajan considerable leeway for a partial roll-back of its liquidity tightening measures as the Fed move is set to give a big reprieve for the rupee.
We expect the RBI Governor to partially roll back July tightening measures after the US Fed expectedly deferred tapering. Our US economist, Ethan Harris, continues to expect the Fed to taper December onwards. This reprieve for the rupee should provide the RBI space to support growth, said Bank of America Merrill Lynch in a note.
BofA-ML expects the RBI to reduce the MSF (marginal standing facility) rate by 50 bps to 9.75 per cent. Alternatively, it could resume open market operations of Rs 12,000 crore to boost deposit growth, BofA-ML said.
The RBI can withdraw fully or partially some of the extraordinary liquidity tightening it had done to support the rupee including ceiling on LAF and steep hike in MSF. As a first measure it can ease MSF by 50 bps with a timeline for further reduction, consistent with the promise of transparent and predictable course of policy articulated by Rajan, said Motilal Oswal, CMD, Motilal Oswal Financial Services.
There is a chance that RBI may reverse partly, the monetary tightening measures it took during the second week of July 2013 and afterwards to address the currency crisis, said V Balasubramanian, Fund manager, IDBI Mutual Fund.