RBI maintains status-quo, rates to remain unchanged at 6 percent

Last Updated: Wed, Dec 06, 2017 19:26 hrs

Mumbai: The RBI Monetary Policy Committee meet has finally delivered its decision on the interest rates.

The rates have been left unchanged at 6.00 percent, a seven-year low.

The reverse repo rate has also been left unchanged at 5.75 percent. Five members of the monetary policy voted to keep rates unchanged while only one voted for a 25 basis point or 0.25% cut in the interest rates.

A Reuters' polls had predicted a status quo on the repo-rate suggesting that the central bank will maintain a neutral stance in its monetary policy. Markets were keen for a positive announcement, considering an economic easing and the news of Moody's revising sovereign ratings.

The committee has stayed the rates in spite of inflation triggering to a seven month high. Markets were also hopeful of some cheer considering a GDP rebound and positive ratings from Moody's.

India's GDP rebounded to 6.3 percent in the September quarter from a three-year low of 5.7 percent in the June quarter. Experts quickly indicated that this was owing to a rebound from GST related destocking concerns.

Read more about the impact of GST, Moody's and GDP here

Arvind Chari from Quantum Advisors was quick to point that the status-quo.

He said, "although, they have increased the inflation projection but have also highlighted factors which can soften prices."

"We found this RBI statement to be bit more balanced than the one in October where they appeared unduly concerned on inflation. We expect RBI to remain on a long pause thus current bond yields remain attractive but its trajectory is dependent on government fiscal deficit commitment," he added.

Although the markets ended roughly, with the BSE Sensex ending with a 205.26 points or 0.63% drop, a few industry-insiders concurred that the RBI announcement was an expected one.

Shishir Baijal, Chairman at Knight Frank for instance, suggested that the RBI move was no surprise amid current macro-economic scenario with inflation touching a 6-month high in October.

"However, the want of a growth-inducing monetary policy would continue to have its imprints on the slowdown-hit real estate sector. A cut in the policy rate could have helped stimulate growth and demand particularly in the wake of the recent Moody’s India upgrade,” he said.

Read the highlights from the 7th Pay Commission here

Arun Thukral, MD & CEO at Axis Securities too concurred saying that the policy was on expected lines. He called the decision "mildly hawkish", one that reflected focus on inflation control. The factor of HR components on 7th Pay commission are also additional factors to the rising inflation.

Besides inflation, other factors for the status quo were higher commodity prices and cuts in GST and global financial instability. Surendra Hiranandani, CMD at House of Hiranandani hinted that the RBI's tone along with the current scenario did not guarantee a rate-cut when the MPC would meet again during February.

He shared that credit off take has remained sluggish, impacting most sectors. Dipping interest rates would certainly appeal home-buyers, but the reality is far different. Hiranandani shares that the real estate sector was reeling from policy changes and such as GST, Benami Act, RERA (Real Estate Regulation Act) and a gradual recovery in primary and seconary residential markets was likely in future.

India INC left disappointed,

The outcome of the RBI MPC meet, did leave businesses wanting for more, although heads of leading banks shared that the outcome was in line with their expectations. Chanda Kocchar, the MD at ICICI Bank and Rajnish Kumar the Chairman at SBI both were quoted saying the rate-stay was in line with their expectations.

FICCI's President Pankaj Patel said, "Ficci is disappointed with the RBI's decision to hold on to the policy rate at the current level. A downward revision would have boosted sentiment and supported the growth momentum that we are seeing building up following the second quarter GDP numbers."

Industry body CII too said that reduction in interest rates would have given the necessary signal that fiscal and monetary policy are working in consonance to give a boost to growth.

While, Assocham concurred that inflation weighed on the RBI's decision, growth concerns "cannot be brushed aside" either, as the cost of capital was still high in India.

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