The Reserve Bank of India (RBI) held the repo rate steady at 8.5% in its mid-quarter review of monetary policy today. Repo rate is the rate at which banks borrow money from RBI. The move was widely expected by economists and markets.
The central bank underscored its concern about inflation following the sudden spike in global oil prices even as economic growth has turned sluggish.
'Notwithstanding the deceleration in growth, inflation risks remain, which will influence both the timing and magnitude of future rate actions,' the RBI said in its mid-quarter review statement.
'The RBI has decided to wait for another six weeks to see how inflation would behave before deciding on the rate cut,' C Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister said.
The cash reserve ratio ( CRR), which is the amount of funds that the banks have to keep with RBI, also remains unchanged at 4.75%. The central bank had reduced the CRR by 0.75% last week to ease the liquidity situation.
The inflation data showed February wholesale price index inflation at 6.95%, slightly lower than the RBI's March-end projection of 7%.
Praising the central bank for its focus on inflation, Samiran Chakraborty, Chief Economist at Standard Chartered said, “The inflation bias of the central bank remains... the Reserve Bank is showing its credibility that inflation is a priority and it needs to be brought down in a sincere fashion.'
The decision means that interest rates on home and other consumer loans are unlikely to be revised lower before April when the RBI will announce its annual policy. The central bank has not cut rates for nearly three years. In this period, the repo rate has gone up by 3.5% to 8.5%.
'We didn't expect a rate cut at all... unless there is some clarity on core inflation, crude prices and fiscal deficit we will not see rate cuts,' Keki M Mistry, VC & CEO of HDFC Ltd said.
However Mistry said that home loans should go down by 75-100 basis points in a year from now if oil prices don’t spike to $180-200 per barrel.
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The central bank underscored its concern about inflation following the sudden spike in global oil prices even as economic growth has turned sluggish.
'Notwithstanding the deceleration in growth, inflation risks remain, which will influence both the timing and magnitude of future rate actions,' the RBI said in its mid-quarter review statement.
'The RBI has decided to wait for another six weeks to see how inflation would behave before deciding on the rate cut,' C Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister said.
The cash reserve ratio ( CRR), which is the amount of funds that the banks have to keep with RBI, also remains unchanged at 4.75%. The central bank had reduced the CRR by 0.75% last week to ease the liquidity situation.
The inflation data showed February wholesale price index inflation at 6.95%, slightly lower than the RBI's March-end projection of 7%.
Praising the central bank for its focus on inflation, Samiran Chakraborty, Chief Economist at Standard Chartered said, “The inflation bias of the central bank remains... the Reserve Bank is showing its credibility that inflation is a priority and it needs to be brought down in a sincere fashion.'
The decision means that interest rates on home and other consumer loans are unlikely to be revised lower before April when the RBI will announce its annual policy. The central bank has not cut rates for nearly three years. In this period, the repo rate has gone up by 3.5% to 8.5%.
'We didn't expect a rate cut at all... unless there is some clarity on core inflation, crude prices and fiscal deficit we will not see rate cuts,' Keki M Mistry, VC & CEO of HDFC Ltd said.
However Mistry said that home loans should go down by 75-100 basis points in a year from now if oil prices don’t spike to $180-200 per barrel.
....more info