The Reserve Bank of India (RBI) did not cut the repo rate on Tuesday, but your EMIs could still come down soon as both the government and the central bank are working on ways to better transmission of policy rate. A separate survey suggests the Reserve Bank of India will keep its repurchase rate at 6.75 percent. The RBI has also left CRR and SLR unchanged at 4 percent and 21.5 percent respectively.
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But as expected, Rajan maintained status quo and kept the rates unchanged owing to consumer inflation and global markets.
On the one hand, the 7.4% GDP growth the country recorded in the fiscal second quarter makes it the fastest-growing large economy in the world.
The central bank said it will look for more cues on the fiscal side before deciding on more rate cuts.
Experts believe the USA central bank may hike rates later this month, which will further strengthen the dollar and trigger capital outflows from emerging markets like India.
ICICI Bank chief executive Chanda Kochhar said: “As the impact of monetary policy measures taken so far play out in terms of bank funding costs, lending rates are expected to continue to moderate”. “It is a hard task the government has ahead of it, but by no means it is impossible”, Rajan told analysts on the customary post-policy review call.
“We’ve said repeatedly that our intent is to minimise volatility in the exchange rate rather than target a particular level”, he added”, Rajan said. Thus far, banks have been hesitant to reduce interest rates on deposits beyond a point apprehending money will move away to small savings schemes.
The RBI has cut the repo rate four times (125 basis points) since January 2015.
All 45 economists surveyed expected the RBI to stand pat at its policy review on Tuesday, while the range of forecasts for gross domestic product growth for the latest quarter was between 6.9-7.6 percent, with the median at 7.3 percent. In a dovish policy statement, Rajan said that the Indian economy was “truly in a recovery mode” and that Indian markets are expected to sail through the US Federal Reserve’s expected rate hike next month. Rajan, whose anti-inflation stance had last year earned him flak from pro-growth advocates, declined to take any credit for the economic growth though it has been almost a year since the central bank shifted its hawkish stance.
The RBI said it would follow developments on commodity prices, especially food and oil, even while tracking inflationary expectations and external developments.
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Dr. Rajan said the RBI had, in its bi-monthly monetary policy statement of September, assessed that the inflation target for January 2016 at 6 per cent was within reach.
