Reserve Bank Of India Keeps Key Rates Unchanged

The policy repo rate under the liquidity adjustment facility stays at 6.25 per cent, and so does the reverse repo rate, at 5.75 per cent.

The central bank has also reduced GDP growth estimate to 7.1 per cent in 2016-17 from earlier projection of 7.6 per cent. Both these moves dampened investor sentiment and the stock markets slid sharply following the policy. The BSE Sensex ended at 26,236.87, down about 156 points, or 0.6%.

“A rate cut in the February policy seems inevitable now as the Central Bank would have got better clarity by then on the impact of demonetization”, he added. “Volatility in crude prices and the surge in financial market turbulence could put the inflation target for Q4 of 2016-17 at some risk”, he told the media, after the policy statement was announced.

Kotak Mahindra Banks Shanti Ekambaram attributed the surprise from the MPC to the “uncertain global and local factors, and the RBI will now wait and watch for more trends and data”. “The consumption demand has been impacted post demonetisation and a rate cut would have given a strong signal to the consumers and to the industry as well”, Ficci President Harshavardhan Neotia said.

However, banks remain confident that loans will get cheaper after the RBI made a decision to release funds locked by way of an incremental cash reserve requirement.

“It is hard to say at this point whether there will be a rate cut in the next policy meet”.

“Since the impact of the demonetisation is unclear, I expected them to be proactive and do a rate cut”.

However, if economic activity has been damaged as much as many fear, the RBI’s wait-and-see approach will come to be seen as complacent, they added.

In the end, it turned out to be a big disappointment for all those who expected that the Reserve Bank of India’s Monetary Policy Committee will announce a reduction in the repo rate.

At the beginning of November the Indian government pulled 86% of the country’s currency out of circulation, banning all 500 and 1,000 Rupee notes in an attempt to combat corruption, black money and terrorism.

Mumbai: Rejecting criticisms, the RBI on Wednesday asserted that demonetisation decision was taken after detailed deliberations and not in haste, but conceded it could affect part of industrial activity while it has already impacted construction, trade, hotels and communications sectors. According to Gandhi, Rs 11.55 lakh crore of demonetised notes have reached the banking system and the presses are working hard to fulfill the needs.

Acknowledging that supply disruptions against the backdrop of currency replacement may drag down growth this year in India, he said short-term developments that influence the outlook disproportionately warrant caution with respect to setting the monetary policy stance.