RBI keeps its key rates unchanged

The key interest rate was kept unchanged at 6% for the fourth successive time while the reverse repo rate, where RBI borrows money from commercial banks, was also left unaltered at 5.75%.

Shishir Baijal, Chairman & Managing Director, Knight Frank India said that the Reserve Bank’s move to keep the repo rate unchanged amid collective pressure from sharp spikes in crude prices, surge in bond yields, and retail inflation breach, came as a relief for real estate.

“Considering the thrust given to inflation management and the recent trajectory of inflation, the present stance of RBI is fully justified”, she said.

“The central bank’s stance was largely along expected lines, reflected in a relatively muted response in the bond and equity markets”.

However, Ficci President Rashesh Shah said there has been only one repo rate cut by the RBI of 25 bps during the last fiscal year, and the recently released Economy Survey clearly states that inflation during 2017-18 averaged the lowest in the last six years.

Inflation was estimated at 5.1 percent for the January to March period and to accelerate to 5.1-5.6 percent in the first half of fiscal year 2018-19.

“The guidance is likely to remain data-dependent, with a shift to tighten rates requiring further evidence in a build-up in inflationary pressures”, said Radhika Rao, group economist for DBS in Singapore.

Consumers blame the reluctance of the government to lower the fuel prices, even when the worldwide crude oil prices plummeted, as the main reason for the consumer price index inflation.

“I think the RBI should hold rates”.

The inflation outlook also factored an increase in the industrial raw material prices.

“Again the fiscal slippage as indicated in the Union Budget could impinge on the inflation outlook.as also on economy-wide costs of borrowing, which have already started to rise”, says the MPC report.

He said: “The MPC still needn’t rush to tighten again, but the economy’s unexpected momentum means that we have pulled forward our forecast for the next rate rise to August, from November”. Since we are closing down on the financial year, a rate cut today would have allowed potential buyers to plan better for their investments in the property market for the next financial year.