RBI keeps repo at 7-year low of 6%; cites retail inflation, HRA effect of up to 35 bps among reasons for status quo

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RBI keeps repo at 7-year low of 6%; cites retail inflation, HRA effect of up to 35 bps among reasons for status quo
  • 15:47 (IST)

    Highlights

    At ​today's Monetary Policy Committee review meet, the Reserve Bank of India decided to stick to a 6 percent repo rate. The review was mainly in line with several expert opinions that had backed  a status quo. GDP number in October came in at 6.3 percent, as against 5.7 percent that came in June.

    Inflation also rose to 3.58 percent in October compared with 3.28 percent earlier. The monetary policy committee took a cautious note of the macroeconomic indicators. Out of six members, one memebr voted in favour of a 25 basis points rate cut. 

    Despite some improvement, construction sector growth remained tepid due to transitory effects of the RERA and GST implementation. Growth in the trade, hotels, transport and communication sub-group remained resilient, in spite of some slowdown in growth in Q2 as compared with the previous quarter.

    On the expenditure side, the growth of gross fixed capital formation improved for the second successive quarter. However, growth in private final consumption expenditure – the mainstay of aggregate demand – slowed to an eight-quarter low in Q2.

    The RBI said: Dr Chetan Ghate, Dr Pami Dua, Dr Michael Debabrata Patra, Dr Viral V Acharya and Dr Urjit R. Patel were in favour of the monetary policy decision, while Dr Ravindra H Dholakia voted for a policy rate reduction of 25 basis points. The minutes of the MPC’s meeting will be published by December 20, 2017.

    The next meeting of the MPC is scheduled on February 6 and 7, 2018.

  • 14:58 (IST)

    Reforms will help, says RBI governor Urjit Patel
     

  • 15:32 (IST)

    Repo rate unchnaged on expected lines

    RBI’s decision to maintain status quo on policy repo rate and neutral stance is along the expected lines. The MPC has retained its growth projections with risks evenly balanced and slightly raised its inflation projections.  The tone remains distinctly cautious on prices and positive on growth. In view of short term uncertainties on price trajectory, further policy action will largely remain data dependent. We however expect a prolonged paused on rate action for now.
     
    Rajni Thakur, Economist, RBL Bank

  • 15:22 (IST)

    A history of rate cuts

  • 15:19 (IST)

    RBI to be on 'pause' mode

    “It is unlikely that the RBI will move in the February policy too, given the inflation trajectory which is likely to peak in June 2018. Further, global policy rate cycle and commodity prices along with consolidated fiscal position will keep the RBI cautious. However, incoming data versus the RBI’s projections will remain key.

    The tone of the policy does not indicate much room for any rate cuts. We maintain our call that the RBI will be on a pause in the near term. Chances of any rate hikes will be contingent on durability of inflation remaining above the RBI’s comfort zone."

    Suvodeep Rakshit, senior economist, Kotak Institutional Equities, Mumbai

  • 15:17 (IST)

    'Too early to predict RBI policy in February'
     

    “All indicators such as inflation, oil and commodity prices, and global cues have been in one direction since the last policy meet. They don’t seem to favour a rate cut going forward.
      
    “I don’t see a reason why RBI would cut rates in the next meeting in February unless something substantial changes..”
    “It’s too early to predict beyond the February policy meet, we’ll have to see how things shape up.”

    Sudhakar Pattabiraman, Head, Research Operations, Marketsmith -- part of William O'Neil, Bangalore

  • 15:14 (IST)

    In digital push, debit card charges to be rationalised


    The RBI said it had decided to rationalise charges on debit card transactions to give a further fillip to digital payments. 

  • 15:12 (IST)

    Rate cut in February unlikely, says Sunil Sinha, India Ratings

    ”A rate cut in February is unlikely given that the upside inflation risks that the central bank was expecting are still panning out. Given where the vegetable prices and oil prices have stood at recently, CPI and WPI data is expected to come in higher than October numbers. The tone of the policy statement in my view is cautious. While it highlights positives on the growth front, issues on global development and outlook on inflation put the RBI in a difficult situation.”

    Sunil Sinha, Director, Principal Economist, India Ratings, Delhi

  • 15:10 (IST)

    RBI repo rate at a glance

  • 15:09 (IST)

    Currency in circulation increased by Rs 73,600 crore in Q3

    Surplus liquidity in the system has continued to decline during October and November.

    Currency in circulation increased by Rs 736 billion in Q3 (up to December 1, 2017) over end-September on festival demand.

    The Reserve Bank managed surplus liquidity through the conduct of regular variable rate reverse repo auctions of various tenors, ranging from overnight to 28 days. 

  • 15:07 (IST)

    Urjit Patel says bank recapitalisation is PSB reform 

    The RBI is working with the government on the modalities of bank recapitalisation bonds, said Urjit Patel.

    He also said bank recapitalisation is not just fund infusion but reforms of state-run banks as well.  

  • 15:06 (IST)

    Sensex extends losses as RBI holds policy rate

    Market benchmark Sensex fell 218 points to quote at 32,584.66 in late afternoon trade on Wednesdsy soon after the Reserve Bank kept the policy rate unchanged at 6 percent but raised the inflation forecast. 

    The six-member Monetary Policy Committee (MPC), headed by Reserve Bank of India Governor Urjit Patel, in its bi-monthly monetary policy review kept repo rate unchanged at 6 per cent and reverse repo at 5.75 percent.

    The Sensex, which had lost 100 points in early trade, continued its slide and fell 217.78 points, or 0.66 percent, to 32,584.66. The gauge had lost 67.28 points in the previous session. Similarly, the NSE Nifty was trading lower by 78.70 points, or 0.77 percent, at 10,039.55. 

    Interest-sensitive stocks took a beating, dragging the BSE banking index down by 0.49 percent. SBI, ICICI Bank, Axis Bank, HDFC Bank, Bank of Baroda and Yes Bank fell by up to 1.44 percent.

    Selling pressure also gathered momentum in other stocks such as Sun Pharma, Tata Steel, Hero MotoCorp, Bajaj Auto, M&M, Adani Ports, Wipro, NTPC and L&T.

  • 15:04 (IST)

  • 15:03 (IST)

    The Reserve Bank’s survey of households showed inflation expectations firming up in the latest round for both three months ahead and one year ahead horizons. 

    Farm and industrial raw material costs rose in October. Firms responding to the Reserve Bank’s Industrial Outlook Survey expect to pass on the increase in input prices to their output prices.

    Turning to other costs, wage growth in the organised sector edged up, while rural wage growth weakened, particularly in agriculture.

  • 15:00 (IST)

    Overall, the price situation is not all that bad. The MPC expects the vegetable prices to moderate in the near term and pulses are already on the downtrend. 


    "Despite recent increase in prices of vegetables, some seasonal moderation is expected in near months as winter arrivals kick in. Prices of pulses have continued to show a downward bias. The GST Council in its last meeting has brought several retail goods and services to lower tax brackets, which should translate into lower retail prices, going forward," the statement said.

  • 14:59 (IST)

    Repo rate from Raghuram Rajan to Urjit Patel
     

  • 14:57 (IST)

    MPC sees crude oil prices to sustain the rise

    Crude oil prices are likely to sustain the rise, feels the policy committee.

    "...The recent rise in international crude oil prices may sustain, especially on account of the OPEC’s decision to maintain production cuts through next year. In such a scenario, any adverse supply shock due to geo-political developments could push up prices even further," the statement said.

    This may not be a good news for the NDA government.

  • 14:56 (IST)

    Despite some improvement, construction sector growth remained tepid due to transitory effects of the RERA and GST implementation. Growth in the trade, hotels, transport and communication sub-group remained resilient, in spite of some slowdown in growth in Q2 as compared with the previous quarter.

  • 14:55 (IST)

    RBI maintains status quo
     

  • 14:52 (IST)

    Inflation forecast raised to 4.4%-4.7%

  • 14:51 (IST)

    'Monetary policy non-event'


     

  • 14:48 (IST)

    Households expect inflation to rise, finds survey

    According to the statement, households expect the inflation to go up. 


    "Inflation expectations of households surveyed by the Reserve Bank have already firmed up and any increase in food and fuel prices may further harden these expectations," the statement said.

  • 14:46 (IST)

    MPC warns of fiscal slippage, impact on inflation


    The statement lists out the reasons for a likely fsical slippage. "...Implementation of farm loan waivers by select states, partial roll back of excise duty and VAT in the case of petroleum products, and decrease in revenue on account of reduction in GST rates for several goods and services may result in fiscal slippage with attendant implications for inflation," the statement says.

  • 14:45 (IST)

    MPC warns of fiscal slippage, impact on inflation


    The statement lists out the reasons for a likely fiscal slippage. "...Implementation of farm loan waivers by select states, partial roll back of excise duty and VAT in the case of petroleum products, and decrease in revenue on account of reduction in GST rates for several goods and services may result in fiscal slippage with attendant implications for inflation," the statement says.

  • 14:44 (IST)

    MPC on a cautious mode, says Dinesh Unnikrishnan, Financial Editor, Firstpost

    The MPC has acted on the expected lines. With inflation inching up, global commodity prices on the rise and the prospects of interest rate hike in US bright, it was certain that the rate-setting panel wouldn't tinker with the RBI key rates today.

    What is critical to note is that the RBI now expects the growth to be at 6.7 percent for 2017-18 retaining its earlier forecast. It also expects inflation to be in the range of 4.3-4.7 percent in Q3 and Q4 of this year.

    The rate panel appears to be bullish on a likely pick up in growth in the economy but has cautioned that its future actions will depend closely on incoming data. There is no commitment of a future rate cut from the central bank which has maintained a cautious neutral stance.  

  • 14:42 (IST)

    Ravindra Dholakia lone member to favour a 25 bps rate cut


    Among the committee members only Ravindra H Dholakia favoured a 25 bps reduction in rate. All others -- Chetan Ghate, Pami Dua, Michael Debabrata Patra, Viral V Acharya and Urjit R. Patel -- were in favour of the monetary policy decision to retain the status quo.

  • 14:41 (IST)

    CPI inflation in thrid and fourth quarter seen 4.3-4.7%


    CPI inflation in the second half of seen 4.3-4.7 percent, above the RBI's medium-term target of 4 percent.

  • 14:40 (IST)

    The expected seasonal moderation in prices of vegetables, and fruits and the recent  lowering of tax rates by the GST Council could mitigate upside pressures. 

    Accordingly, the MPC decided to keep the policy repo rate on hold. However, keeping in mind the output gap dynamics, the MPC decided to continue with the neutral stance and watch the incoming data carefully. 

    The MPC remains committed to keeping headline inflation close to 4 per cent on a durable basis. 

  • 14:39 (IST)

    The unemployment rate fell to 4.1 per cent in October, the lowest in the last 17 years. In the Euro area, economic activity expanded, underpinned by accommodative monetary policy and strong job gains. The Japanese economy also continued to grow in Q3, largely supported by external demand, which helped compensate for the slowing of domestic consumption.

  • 14:36 (IST)

    Why RBI has kept repo unchanged, read

    The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main considerations underlying the decision are set out in the statement below.

  • 14:33 (IST)

    RBI keeps repo rate unchanged at 7-year low of 6%

    The Reserve Bank of India on Wednesday kept the benchmark interest rate, repo, unchanged at 6 percent in line with the market expectations. Most economist were expecting the rate setting panel to maintain status quo in the backdrop of rising inflation and global commodity prices.

  • 14:30 (IST)

    RBI keeps repo rate unchanged at 7-year low of 6%

  • 14:29 (IST)

    RBI expected to be cautious on growth: DBS

    “We don’t expect the tone to be outright hawkish as the RBI might need to trim down its growth projections for FY18, which at current levels is optimistic,” a Reuters report said quoting Radhika Rao, who expects a hold on Wednesday and in February.

    “But they would still sound cautious on inflation and positive on growth.”

  • 14:26 (IST)

    Economic recovery, welcome news, says Radhika Rao 

    Last week, there was welcome news of a recovery in annual economic growth in July-September to 6.3 percent, from 5.7 percent the previous quarter.

    “The recovery is a source of comfort to the RBI as it lowers pressure on them to take a growth-supportive stance,” said Radhika Rao, an economist at DBS in Singapore.

  • 14:23 (IST)

    Inflation, a source of discomfort


    Another source of RBI discomfort is that core inflation, which excludes food and energy prices, has remained stubbornly high at around 4.5 percent, a Reuters report said.

  • 14:22 (IST)

    Will RBI take a 'neutral' stance?


    The central bank is likely to reiterate a “neutral” stance, thus giving itself flexibility to cut rates in February, even though only seven of the 48 analysts in the Reuters poll who gave a view on 2018’s first meeting expect that outcome.

  • 14:22 (IST)

    Repo rate will be untouched, Reuters Poll

    All but two of 54 analysts in a Reuters Poll said the repo rate would be left at 6 percent, the lowest since November 2010.

    In August, the RBI made its only cut in 2017, of 25 basis points, and in October, it held it.

  • 14:16 (IST)

    Will RBI maintain status quo today? Here is Latha Venkatesh's take

  • 14:09 (IST)

    Banking share trade lower on RBI policy day


    The 30-share index fell 100.07 points, or 0.30 per cent, to 32,702.37, with sectoral indices of banking, auto, metal and PSU trading dropping up to 1.76 per cent.

  • 14:08 (IST)

    'RBI's moentary policy this time wont be noted for rate action, but for what it says and does not say'

  • 14:07 (IST)

    'Opinion of MPC's external members not material'

  • 14:05 (IST)

    Nifty down on RBI policy day 

    The broader NSE Nifty was down 0.28 percent at 10,090.20 as of 0536 GMT, while the benchmark BSE Sensex was 0.19 percent lower at 32,739.93

  • 14:04 (IST)

    Markets show general volatality


    “It is a general volatility in the markets before the RBI policy decision,” said Rakesh Tarway, head of research at Reliance Securities.

  • 14:03 (IST)

    Investors maintain cautious stance

    Nifty extends losses, Sensex falls over 100 points as Asia slips further

  • 14:00 (IST)

    Monetary policy must address 'frothy' financial markets

  • 13:59 (IST)

    Why Urjit Patel may not go for a rate cut

  • 13:57 (IST)

    Don't see any rate cut in RBI policy, says Latha Venkatesh 

  • 13:55 (IST)

    RBI to announce shortly 5th bi-monthly monetary policy review for FY18

  • 13:55 (IST)

    Monetary transmission is stronger in economies where debt is high
     

  • 13:53 (IST)

    Bankers do not see repo rate cut

The Reserve Bank of India's Monetary Policy Committee slated to announce the interest rate decision in a short while after its two-day meeting to review the monetary policy for 2017-18. The bimonthly meeting has been on from Tuesday.


RBI1_new_AFP

There is wide expectation that the committee will not cut repo rate -- the rate at which the central bank lends to banks, which is its policy rate -- due to concerns over a likely rise in retail inflation. Moreover, there has been a marginal jump is GDP growth in the second quarter.

In October, consumer price index-based inflation hit a seven month high of 3.58 percent while during July-September the country's GDP grew 6.3 percent as against 5.7 percent in the previous quarter. Economists feel the uptick in growth will give enough elbow room for the committee to hold the rate this time round.

There are also concerns that inflation may quicken further, given the unprecedented winter rains that is likely to impact the production of vegetables and food grain negatively, eventually pushing up the food inflation. Also the international crude oil prices are on the upswing, which is also likely to boost commodity prices.

Moreover, the impact of the goods and services tax (GST) on the prices and the seventh pay commission award on the inflation are still unfolding. The RBI may want to wait and watch a little bit more before taking any decision on the rate.

A survey conducted by Bloomberg showed 42 of the 48 economists polled said RBI will not cut repo rate. Again, all but two of 54 analysts in a Reuters poll said the repo rate would be left at 6 percent, the lowest since November 2010.


However, government officials and ministers are pushing for a rate cut.

“The central point is why the MPC is not cutting down the interest rates to reduce the cost of capital. MPC’s reluctance to do so means that no businesses can survive as the cost of working capital is high and no entrepreneur will be willing to hire new people,” Surjit Bhalla, a member of the Prime Minister's Economic Advisory Council, told Firstpost recently.

The economist was of the opinion that the MPC should not be carried away by the 6.3 percent GDP growth recorded in July-September.

A status quo on the interest rate is likely to elicit sharp reactions from the government. But the MPC has not many options.

Over to the MPC.


Published Date: Dec 06, 2017 03:22 pm | Updated Date: Dec 06, 2017 04:22 pm



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