 "No rate cut: Ball stays in govt's court as RBI signals halt in easing")
The Reserve Bank of India today held the policy rates and banks’ cash reserve ratio, halting for an uncertain period its rate easing cycle due the rising concerns about the global economic situation.
“The above monetary policy stance has been informed by the evolving growth-inflation dynamic, the balance of risks as well as recent developments in the external sector,” the central bank said in its press release.
With the RBI leaving the rate unchanged, the repo rate stands at 7.25 percent and the CRR at 4 percent.
[caption id=“attachment_876585” align=“alignleft” width=“380”] RBI leaves key rates unchanged[/caption]
“It is only a durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth,” the RBI said in its statement.
“While several measures have been taken to contain the current account deficit, we need to be vigilant about the global uncertainty, the rapid shift in risk perceptions and its impact on capital flows,” it said.
Reacting to the RBI move, PMEAC chairman C Rangarajan said that the move is largely influenced by the external pressure.
He, however, added that good rains could moderate food inflation.
He also suggested that stabilisation of rupee and capital inflows in the next eight weeks could help RBI ease rates in July review.
Impact Shorts
More Shorts“Governor has hit the nail on the hit. A rate cut in the past did not result in any significant investment. In fact lack of clarity on government’s reform process is the biggest roadblock for industry right now,” said Ashok Wadhwa of Ambit.
He said the RBI is again indicating that the ball is in the government’s court.
“The RBI has already made his point that the industry should not expect any more rate cuts.”
The RBI reiterated that the key to growth is, “accelerating investment by creating a conducive environment for private investment, improving project clearance and implementation and leveraging on the crowding-in role of public investment.”
As far as liquidity is concerned the central bank has not voiced any major concerns.
The fall in net average daily borrowings under the LAF have declined gradually from Rs 1.2 lakh crore in March 2013 to Rs 70,000 crore in June 2013 so far, the RBI said.
It attributed the let up in the liquidity situation to “the sizable injection of primary liquidity through the reduction in the cash reserve ratio (CRR) in January, open market operations (OMO) purchases during Q4 of 2012-13, a significant reduction in the government’s cash balances with the Reserve Bank as well as two OMOs of Rs 0.2 trillion in the current financial year so far”.
The markets and the rupee, meanwhile, were trading with smaller losses as a no-event policy was priced in by investors.
All in all, the hawkish RBI has tempered the expectation of any decrease in loan EMIs for the common people in the near future as the bankers on CNBC-TV18 ruled out any rate cut.
Read the full press statement here.
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