RAJAN BIDS ADIEU WITH NO CHANGE
Posted by: Clara Fernandes at 8/09/2016 07:20:00 am
India 09 August 2016: In a much forecasted move, the apex bank today has decided to keep the rates unchanged on account of high retail inflation being still above RBI’s expectations. This was also the last RBI bi-monthly policy review for the present Governor, Raghuram Rajan, who is to finish his tenure in September. The repo rate at present stands at 6.5 percent with reverse repo rate under the LAF kept unchanged at 6 percent. Cash reserve ratio (CRR) remains at 4 percent with MSF rate and Bank rate at 7 percent respectively, and Statutory liquidity ratio (SLR) at 21.5 percent. This is the second time in succession that the rates have been kept unchanged since the last rate cut made during April’s monetary review.
“Being the last review policy for the present governor, it was quite anticipated that a balanced approach would be executed. Also, since the retail inflation was higher than projected, this decision was pretty much on the cards. For the realty sector, it is a good decision considering the passage of GST with still rising uncertainty over the rates”, says Rakesh Yadav, Chairman, Antriksh India Ltd. Adding further, Kushagr Ansal, Director, Ansal Housing explains, “This policy review decision has not out as a surprise, and chances are that we might not see a rate cut in the remaining policy reviews for this calendar year as the newly appointed governor will take time and might follow a stable approach before commencing with any hikes or reductions. GST has been passed and the RBI will have to take actions in the next policy review based on what rate gets decided.”
“As the retail inflation observed higher numbers, it was clear that RBI will use a wait and watch approach, and this policy review being the last one for Raghuram Rajan, chances were slim that a rate cut was possible. Although, this time the monsoon has resulted better than forecasted which will allow the next policy review to become a bit lenient. The banks are yet to pass on the benefits of previous rate cuts and with the upcoming festive season, this sector will majorly bank upon how the next policy review shapes up”, avers Vaibhav Jain, CMD, Rise Group.
“Choosing not to cut down on the key rates is a wise step as the current market is susceptible to inflation and with the recent rise in retail inflation measured against the CPI, the future trajectory of inflation is uncertain. Although, with the festive season around the corner, this sector is forecasting a rate cut in the next policy review of RBI so that the banks can pass on the benefits right before high-sales volume that is witnessed during festive season”, states Rahul Chamola, MD, One Leaf Group.
“The apex bank has decided not to cut down on the rates in an accommodating measure for all. With the last reduction only two policies old, it wants to be sure if the market is ready to stabilise in the anticipation of more rate cuts. As Raghuram Rajan bids adieu with this policy review, a tough task lies ahead, as the sector will be expecting a rate cut in the next policy review since the market is expected to gain momentum with better monsoon this time and festive season ahead. A cautioned approach might also be underway with GST rate yet to be decided”, concludes Dhiraj Jain, Director, Mahagun Group.