RBI has kept its repo rate unchanged at 5.15 per cent while lowering its GDP forecast.
RBI Monetary Policy December 2019 Highlights: The Reserve Bank of India (RBI) on Thursday kept its repo rate under the liquidity adjustment facility (LAF) unchanged at 5.15 per cent, while maintaining an “accommodative stance”. This is the first bi-monthly monetary meeting this year in which the repo rate has been kept unchanged.
The central bank had been cutting the key interest rates at every MPC meeting since Shaktikanta Das took over as the Governor of RBI last December. In the five reductions so far this year, the interest rates have been reduced by a total of 135 basis points on concerns that growth momentum is slowing down and to boost liquidity in the economy.
RBI has also cut the GDP growth forecast for 2019-20 to 5 per cent from 6.1 per cent in its October meeting.
"The Outcome of the MPC meet of the RBI indicates that the RBI is worried about the rising inflation which may not come down till atleast February 2020 and GDP may not rise materially till Q4FY20 as domestic and external demand conditions have remained weak. Hence it thought prudent not to cut rates at this juncture. Instead it has nudged the Govt to cut interest rates on small savings scheme so that interest rate transmission becomes faster. Capacity utilization that has touched a low of 68.9% in Q2FY20 needs to revive soon. It has also tightened norms for UCBs. Though the stock market participants could be disappointed by the no-repo-rate-cut action, we think that the participants are mature enough to understand the prudence of the Central Bank which means that the markets may not react downwards sharply due to this disappointment."
"From a real estate point of view, a rate cuts are obviously always welcome as they help improve overall sentiment. Also, lag-less transmission of rate cuts to retail borrowers as RBI has mandated banks to directly link interest rates with repo rates. The expected rate cut of 25 bps would have caused home loan values to fall below 8 per cent for first time ever.
However, it is also true that another rate cut alone would have been insufficient to stir housing sales significantly across budget categories. The previous rate cuts throughout 2019 had almost no perceptible impact on residential sales. In fact, back in 2014, even when the home loan rates were high in two digits at 10.3 per cent, housing sales remained at peak levels.
In the present scenario, only the combined effect of lower interest rates coupled with other measures such as a cut in personal taxes – reportedly being considered by the FM – can actually stimulate residential sales out of their current lethargy."
"The decision to maintain policy rates augurs well for the economy as the recently introduced policy reforms will take time to pan out and materialise. The economy needs to absorb the impact of the recently introduced reforms and the previous rate cuts. The real estate sector is expected to pick up due to the favourable policy incentives and the faster transmission of previous rate cuts.
Moreover, with the inflation already crossing the 4 per cent mark and expected to remain elevated for a few quarters, further rate cuts would have posed an upside risk.
In light of the recently announced reforms doled out by the government, the real estate sector is expected to register higher growth in times to come. Measures brought so far are likely to show their impact. Complementing the corporate tax cuts and the creation of an AIF fund for stressed projects, the government should explore the options of increasing the money supply in the economy. That would not only encourage consumer spending but also stimulate investment flows and higher credit flow which has come down over the quarters."
"With the surplus liquidity in the system, rates have already come down in market. Status-quo on repo rates is in a way positive for banks as they will not have to bring down their lending rates as per new repo rate linked loan pricing. Going forward, we see limited scope of repo rate reductions considering upward pressure on inflation."
"It was an unexpected move with the RBI keeping the repo rate unchanged at 5.15 percent, as the market expected 25 bps cut in repo rate. With the RBI following a inflation targeting regime, the Central Bank focused on maintaining the inflation rate within the target range The rising food inflation posed a challenge to the Central Bank in cutting the rates. For instance, in October, food inflation stood at 6.93 percent. In the same month, vegetable prices registered a YoY growth rate of 26 percent. However, by maintaining the accommodative stance, there is room for rate cuts in the future."
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We need to watch the budget to get an indication of the countercyclical measures of the government
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RBI will act on rate cuts if the situation requires so
Won't hesitate to prevent the collapse of any large NBFC
We expect faster transmission of earlier rate cuts hereon
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NBFC sector is being monitored regularly. Discussions are done with promoters and management of NBFCs from time to time.
The MPC feels economic growth has weakened further and the output gap remains negative
There are some indications that CAPEX cycle may be turning up
The government and RBI will work in a coordinated manner to revive growth
Rabi sowing is catching up
THE RBI MPC decided better to wait and take a temporary pause
Global markets have been buoyant on hopes of US-China trade deal resolution
The slowdown in GDP growth has been cushioned by expenditure by the government
Expect the external benchmarking impact to play out in coming months
RBI Governor Shaktikanta Das said that the MPC voted to keep the repo rate unchanged
RBI governor Shaktikanta Das has said there is a persisting weakness in global trade but non-oil export growth returned to positive territory in October, after a gap of 2 months.
The RBI has also revised the real GDP growth for 2019-20 from 6.1 per cent in the October policy to 5.0 per cent. The central bank sees 4.9-5.5 per cent in the second half (H2) of the financial year 2019-20 and 5.9-6.3 per cent in the first half (H1) 2020-21.
The reverse repo rate remains unchanged at 4.90 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 5.40 per cent.
The RBI MPC continued with its "accommodative" stance. It said "as long as it is necessary to revive growth, while ensuring that inflation remains within the target."
RBI keeps the repo rate under the liquidity adjustment facility (LAF) unchanged at 5.15 per cent.