Live: RBI keeps rates unchanged; no worries about Coalgate verdict, say banks

2:30 pm: Not hitting panic buttons on bad loans due to Coalgate verdict, say bankers

If they’re worried about the loans given to companies hit by the Supreme Court’s verdict, the country’s largest chairman isn’t showing it.

SBI chief Arundhati Bhattacharya said that there was no need for additional flexibility on recasting coal loans presently.

“Banks have not approached RBI for any flexibility on coal loans,” she said.

We are not pressing panic buttons with respect to bad loans, Bhattacharya said.

2:20 pm: No deposit rate cuts soon, say banks

Don’t expect any deposit rate cuts any time soon, seems to be the message coming out of the Indian Bankers Association press conference.

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“Liquidity has remained comfortable. Short-end rates have come down,” Chanda Kochhar, ICICI chief, told reporters.

She also said that the bank had no intention of cutting deposit rates for the next 1 to 3 years.

HDFC’s Aditya Puri said any revision in rates will depend on a pick up in demand.

11:50 am Housing data shows with 7-8 percent, housing prices are coming down in real terms and becoming more affordable as incomes wages rise, said RBI Governor Raghuram Rajan.

Rajan admitted there is often a cash-component inreal estate transactions which acts as a cushion.

He added thatbanks have an equity cushion in home loans. A real estate deal involves 80% loan to value along with acash component..

“Barring Aurangzeb Road (Delhi), Malabar Hill (Mumbai), I am comfortable with real estate prices,” said Rajan.

RBI says 6% inflation target by 2016 still a risk

11: 39 am Speaking to the press,Rajan said the headline inflation has been buffetted slightly, the risks are still towards the upside; hence reaching 6 percent inflation target by 2016 too is at risk.

The RBI has said that it will continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate, and liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system through auctions.

11: am The Reserve Bank of India today kept key rates unchanged as inflation continues to remain persistently high.

The central bank keptthe repo rate unchanged at 8 percent while the reverse repo ratealso stays at 7 percent. The RBI also kept both the statutory liquidity ratio (SLR) and the cash reserve ratio (CRR) unchanged. SLR is the minimum bond holding requirements that lenders must set aside, while CRR determines the percentage of bank deposits that must be kept at the central bank. However, it said it would cut the ceiling on bonds that must be held-to-maturity from the current 24 percent to 22 percent in stages starting in the bi-weekly cycle beginning in Jan. 10, 2015. It expects to complete the process by September 2015.

RBI said upside risks to target of 6 percent inflation by Jan 2016 are “significant”. It added that consumer inflation target of 8 percent for Jan 2015 appears more within reach than in April statement.

“With international crude prices softening and relative stability in the foreign exchange market, some upside risks to inflation are receding. Yet, there are risks from food price shocks as the full effects of the monsoon’s passage unfold, and from geo-political developments that could materialise rapid,” the central bank said in a statement.

The policy stance will be influenced by the Reserve Bank’s projections of inflation relative to the medium term objective (6 percent by January 2016), while being contingent on incoming data.

Post the RBI announcement,Nifty reversed its direction to be down 0.1 percent. Ithad been up 0.1 percent just before policy outcome/

10:00 am: Markets remain flat

The benchmark BSE Sensex fell over30 points in early trade today on increased selling by fundsand retail investors ahead of RBI’s monetary policy review.

Continuing yesterday’s weakness, the 30-share index movedfurther down by 30.38 points, or 0.11 per cent, to 26,566.73,
with metal, FMCG, PSU, oil & gas and banking sector stocksleading the fall. The gauge had lost 29.21 points in theprevious session.

Also, the National Stock Exchange index Nifty shed 11.25points, or 0.14 per cent, to 7,947.65 in early trade.

However,despite the stumble initially, markets are now in the green with both the Sensex and Nifty up marginally. But with nothing expected from the RBI, it may not be much of a factor for the markets today.

9:30 am: Don’t expect much from the RBI, Raghuram Rajan today

Most investors aren’t expecting the Reserve Bank of India to do anything dramatic today given the commitment by the central bank governor Raghuram Rajan to ‘break the back’ of inflation that remains persistently high.

The RBI, however, may opt to lower the statutory liquidity ratio (SLR), the portion of funds banks need to invest in government bonds, by another half percentage point in line with its stated strategy. This would follow the cuts in June and August.

Lowering SLR will, theoretically, make more liquidity availabile to banks, but may not immediately result in higher credit growth to the private sector since the loan demand is yet to pick up in a slow economy.

An SLR cut will be part of a larger strategy to take the banking system out of financial repression, or forced investment in government bonds, denying money to the private sector.

Of the seven times Rajan has presided over the monetary policy, the repo rate, at which RBI lends short-term funds to banks, has been hiked by 75 basis points (bps) to fight inflation. One bps is one hundredth of a percentage point.

Already, banks are holding SLR much above the mandatory minimum at an average 28 percent as on July. Since Rajan took over as RBI governor, the SLR has been cut twice by a total of one percentage point.

Here are the two factors that the central bank might factor in while formulating its policy stance:

For one, although both the consumer price index (CPI) inflation and the wholesale price index (WPI) have shown signs of easing in recent months, the central bank might not be convinced about the nature of the decline.

The WPI inflation fell to 3.74 percent in August from 5.19 percent in July, the lowest level in five years.

Retail inflation, important in the central bank’s scheme of things, also marginally fell to 7.8 percent in August from 7.96 percent in July but food inflation, a major concern for the central bank, hardened to 9.42 percent from 9.36 percent a month ago.

The stubbornness in food inflation was primarily due to a 15.15 percent jump in vegetable prices and 24.27 percent jump in the fruit prices, putting pressure on overall price levels.

Secondly, the central bank will also take into account the possibility of increase in fuel prices arising out of the fresh coal scenario and new gas pricing. As Firstbiz pointed out earlier, the result of new coal allocation policy and gas pricing formula could be a possible increase in energy prices for consumers.

The central bank, which has openly declared battle against retail inflation, won’t take the chance of ignoring signals that could result in an upward pressure on inflation.