Monday, 6 June 2016

RBI maintains status quo with interest rates

In line with analysts’ estimates, the Reserve Bank of India refrained from lowering policy rates in its second bi-monthly monetary policy meet on Tuesday. The central bank retained the repo or the repurchase rate at 6.50% on the back of higher food inflation and amid expectations of a rate action by the US Federal Reserve. Since the rate-easing cycle began in January 2015, the RBI has reduced policy rates by 150 basis points.

One basis point is one hundredth of a percentage point.

The Reserve Bank continued to maintain an accommodative stance and said if all goes well and there is a fall in food inflation, the RBI will be willing to lower rates further. 

Analysts expect the RBI Governor to lower rates on August 9, after getting a clearer picture on monsoon. With predictions of above normal rainfall, Rajan may also not have to worry about RBI’s FY17 growth guidance of 7.6%. India’s GDP grew at 7.9% in the fourth quarter of FY16 and full-year growth came in at 7.6%.

The move or the lack of it was largely expected with CPI, or consumer price inflation, coming in at a higher 5.4% in April from 4.8% in March, primarily on the back of food inflation. Wholesale price index, or WPI, too came in at 0.3% in April, after being in the negative territory for 17 consecutive months, though this may not have been a deciding factor for the RBI. 

Added to this, the market was expecting the US Federal Reserve to raise rates during its June 14-15 meeting. However, Friday’s weaker-than-expected jobs data (US) may result in Janet Yellen not raising rates until further indication that the US economy can remain or stay on track.

*source: Business Standard

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