RBI holds rates unchanged; Sensex, Nifty down 0.7%

RBI holds rates unchanged; Sensex, Nifty down 0.7%

Last Updated: Wed, Dec 06, 2017 15:02 hrs
RBI (Reuters image)

The Reserve Bank of India, announcing its fifth bi-monthly monetary policy this afternoon, has left rates unchanged as widely expected and kept its stance neutral once again. The last reduction in the repo rate was made in August 2017, when the bank cut the rate by 25 basis points to 6%.

The Reserve Bank of India's Monetary Policy Committee, headed by Governor Urjit Patel, is reported to have voted 5:1 to maintain status quo on the policy rate.

Concerns about rising inflation once again prompted the decision to hold rates as in the previous meeting that took place in October. In October, the consumer price index rose to a 7-month high of 3.5% then, moving closer to the central bank's target of 4%.



Following the move by the central bank's Monetary Policy Committee today, the Repo rates remains unchanged at 6%. The reverse repo rate stands at 5.75% and CRR which too has been left unchanged, stays at 4%.

The projection of real GVA (gross value added) growth for 2017-18 of the October resolution at 6.7% has been retained.  “On the whole, inflation is estimated in the range 4.3-4.7% in the third and fourth quarters of the current financial year, including the HRA effect of up to 35 basis points, with risks evenly balanced,” RBI said in its policy statement.

While reviewing its policy in October this year, the central bank had revised downwards the country's fiscal 2017-18 growth forecast to 6.7% from an earlier projection for a 7.3% growth. This, despite GDP growth in the September 2017 quarter inching up to 6.3% after decelerating for five successive quarters, notwithstanding the impact of demonetisation and implementation of the Goods and Services Tax.

Meanwhile, data released by Markit Economics shows activity in the services sector to have contracted in November, with the Nikkei Purchasing Managers' Index reading falling to 48.5 from 51.7 in the preceding month. According to the report, many persons who were surveyed were of the view that the introduction of the Goods and Services Tax led to subdued demand conditions. The services PMI had contracted in July and August this year and the bounce seen in October has now fizzled out.

The survey said that of the 15% of the survey panel that reported a decline in new work, many commented that recent government policies contributed to sluggish demand and lower customer turnout. Transport & storage, consumer services, information & communications and real estate & business services recorded reductions in new work, the survey showed.

However, the manufacturing PMI for November showed a rebound, albeit after a weak reading for October. The rebound was due largely to a downward revision in GST rates for a few items.

In the stock market, investors are seen indulging in some brisk selling at rate sensitive counters, particularly in the banking space. The BSE Bankex is currently down 1.1%. The Realty and Auto indices are lower by 0.7% and 0.6%, respectively.

The Sensex is down 187 points or nearly 0.7% at 32,614.44, after declining to a low of 32,565.16. The Nifty50 of the National Stock Exchange is down 67.70 points or 0.7% at 10,050.55.

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