RBI Monetary Policy Review today, likely to cut interest rates

A majority of analysts and bankers are expecting RBI Governor Urjit Patel-led Monetary Policy Committee (MPC) to cut rates by 0.25 per cent on Wednesday, with some expecting a 0.50 per cent reduction.

Although consumer inflation INCPIY=ECI eased in October to 4.20 percent, below the RBI’s target of 5 percent by March, prices in India have traditionally been dependant on volatile food and fuel prices.

New Delhi:The Reserve Bank of India on Wednesday announced that the repo rate would remain unchanged at 6.25 per cent.

The MPC is again meeting on December 6 and 7 to take a call on repo rate at which banks borrow short-term loans from RBI, which is now at 6.25 per cent.

The apex bank’s lowering of the GDP projection at 7.1% for this fiscal from earlier estimate of 7.6% also weighed on the stocks.

The tone of the MPC resolution, like the October policy, is somewhat hawkish on inflation but unlike the last time, the MPC decided not to cut rates although the entire market seems to have been expecting a 25 bps cut.

This was the first meeting after India withdrew the legal tender status for highly transacted currency notes of INR 500 and INR 1,000 in a surprise move on November 8, citing their rampant use in illegal activities and a high incidence of fake bills. A number of analysts had expected a decline of 25 basis points after the economy reported weaker than expected growth of 7.3% in the third quarter.

RBI Deputy Governor R Gandhi said customers have deposited Rs 11.55 lakh crore of the Rs 15.4 lakh crore that was withdrawn as part of the demonetisation of Rs 500 and Rs 1,000 notes. Helping to bring down the cost of funds for banks will be the withdrawal of the 100% incremental cash reserve ratio (CRR) requirement imposed on November 26.

Moreover, the subdued inflation is also expected to keep the door open for an easy policy bias. “The resolution of the MPC will be placed on the website at 2.30 pm on December 7, 2016”, the RBI notice said.

The Reserve Bank of India (RBI) will shortly issue Rs 100 denomination banknotes, with some changes on both sides of the note, an official statement said here on Tuesday.