RBI’s repo rate decision on expected lines: India Inc

The status quo on rates is based on a cautious assessment of the upside risks to inflation while maintaining a positive outlook on growth.

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The Reserve Bank of India (File Photo)

The Reserve Bank of India kept its lending rate unchanged at 6.25 per cent on Thursday for the third monetary policy review. It however, increased the reverse repo rate by 0.25 per cent to 6 per cent. The Marginal Standing Facility has also been chnaged by 0.25 per cent to 6.5 per cent.

After the RBI’s announcements, India Inc. said the central bank’s decision is on expected lines. BankBazaar, an online market place for financial products, said in a statement that the RBI has deviated its liquidity management strategy from being accomodating to being neutral. CEO & Co-founder BankBazaar.com, Adhil Shetty said, “As expected, the RBI has deviated its liquidity management strategy from being accommodating to being neutral. Inflationary trends are gathering pace. Hence, to get a control over it and to squeeze excess liquidity out of the banking system, RBI has increased the reverse repo rate. Also, NPAs and bad loans are still a huge concern for both the regulatory bodies and financial Institutions. Along with it, some of the high impact impending events such as implementation of GST, seventh pay commission, monsoon, surge in commodity prices, rupee stability and excess liquidity, are making it very difficult to be certain about inflation and hence this breather is good for the industry.”

Mr Chandrajit Banerjee, Director General, CII said “RBI’s decision to keep the policy rates unchanged while retaining the neutral stance is on expected lines. The status quo on rates is based on a cautious assessment of the upside risks to inflation while maintaining a positive outlook on growth. CII is hopeful that going forward the RBI would shift its policy stance from neutral to accommodative and effect a cut in interest rates to refurbish business sentiment, support domestic demand and trigger the turn of the investment cycle.”

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Mr. Surendra Hiranandani, Chairman & MD, House of Hiranandani said, ” As widely expected, The Reserve Bank of India today kept the repo rate unchanged at 6.25% for the third time in a row. One of the highlights of today’s policy was the decision to allow banks to invest in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INVITs) within the 20% umbrella limit. It will allow banks to invest in an important asset class thereby providing much needed boost to this segment. Owing to better liquidity, the cost of capital for developers in the commercial segment will come down in the future. The decision to hike reverse repo rate by 25 bps to 6% will control the liquidity surplus in the system. The corridor between repo and reverse repo rate has been reduced to 25 bps indicating that the central bank wants to align market rate with the policy rate.”

Urjit Patel said, “For 2017-18, inflation is projected to average 4.5 percent in the first half of the year and 5 percent in the second half.”

“The GVA growth is projected to strengthen to 7.4 percent in 2017-18 from 6.7 percent in 2016-17, with risks evenly balanced. The Marginal standing facility (MSF) rate and the Bank Rate is reduced to 6.50 percent from 6.75 percent with no significant impact on bond markets,” added Patel.