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  1. RBI Governor Urjit Patel holds key policy rates: Who’s saying what

RBI Governor Urjit Patel holds key policy rates: Who’s saying what

RBI kept the key policy rate unchanged at 6.25% against expectations, and toughened the policy stance to ‘neutral’ from ‘accommodative’.

By: | Updated: February 8, 2017 6:38 PM
RBI kept the key policy rate unchanged at 6.25% against expectations, and toughened the policy stance to ‘neutral’ from ‘accommodative’. (Image: Reuters) RBI kept the key policy rate unchanged at 6.25% against expectations, and toughened the policy stance to ‘neutral’ from ‘accommodative’. (Image: Reuters)

The Reserve Bank of India’s Monetary Policy Committee decided to keep the key policy rate unchanged at 6.25% against expectations, and toughened the policy stance to ‘neutral’ from ‘accommodative’, despite saying that it expects the consumer price inflation to remain below 5% in Jan-Mar, and continue to be muted in Apr-Jun on base effect and fall in demand.

The central bank opted to wait for more clarity on the trend of inflation and on the economic impact of demonetisation.

Several analysts had expected the Reserve Bank of India to reduce key policy rates by 25 basis points to 6% in order to spur an economy recovering from the impact of demonetisation, as India’s falling inflation and a fiscally prudent budget had given it enough room to cut rates sooner to give a boost to the economy.

Check what industry and experts are saying on RBI’s policy decision:


Rate cuts later this year?

We do expect 50 bps cut this year based on inflation movements. The RBI’s move from accommodative to neutral policy stance indicates that in case of a spike in inflation, the RBI may opt for a rate hike.
– CARE Ratings

The shift in stance to neutral from accommodative with a status quo on policy rates should allow RBI, going forward, the flexibility to ease rates to push for stronger growth, amidst the government’s fiscal rectitude.
– Rana Kapoor, MD & CEO, Yes Bank

While we understand that the RBI is perhaps holding up for the current liquidity with banks to get transmitted in the system, our sense says 25-50 bps rate cut over the next six months should provide some respite to corporate India on the cost of funds and it may trigger them to start investments.
– Umesh Revankar, MD and CEO, Shriram Transport Finance Ltd


What went on?

Uncertainties in the external sector, rising crude prices and sticky core inflation have led to this decision. However, the central bank has committed to ensure efficient and appropriate liquidity in the banking system with all the instruments at its command. Its decision to bring down inflation closer to 4% on a ‘durable basis’ in a calibrated manner is laudable. It is a pragmatic policy, par for the course.
– Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank

What finally weighed on their minds were uncertainties about sticky core inflation, commodity prices and possible (US) Fed rate hikes. RBI has left further rate cut hopes contingent on future inflation and other prints.
– V S Parthasarathy, CFO, Mahindra Group


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Wanting action

A cut in the repo rate would have boded well for the economy. Giving a push to demand which has taken a hit in the demonetization process is critical as also the need to incentivise domestic private investment in the country which remains lackadaisical.
– Pankaj Patel, President, FICCI

The RBI, in a way, has put the ball in the court of the government for softening of the interest rates which, it said, would depend on how soon the problems of the bank non-performing assets (NPAs), recapitalisation of the lenders and re-caliberating of the small saving, are resolved. Assocham, therefore, would urge the government to take the signals from RBI seriously and address these issues. Besides, there is a strong case for fiscal support, besides the monetary measures, to generate the consumer demand and revive the investment cycle.
– Sunil Kanoria, President, Assocham

 

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