RBI maintains status quo on Repo rate
Reserve Bank of India kept Repo rate steady at 6.25 per cent as announced in its Monetary Policy Review on Wednesday. RBI has cited inflation concerns and the current macroeconomic situation for not cutting Repo rate. The decision was in accordance with advice rendered by Monetary Policy Committee (MPC). However, out of 39 economists surveyed by Bloomberg, overwhelmingly 34 were expecting a rate cut.
Repo rate is referred to the rate used by RBI to lend money to commercial banks whenever there arises a shortage in funds. The repo rate is also used to control inflation and the RBI increases the rate to lower inflation.
Many economists expected a rate cut as inflation dropped to 3.4%, lower than RBI's estimate of 5%. RBI cited 'three significant upside risks' that lend uncertainty to inflation - hardening of crude prices; global volatility in exchange rate and an expected resurgence in demand in financial 2018. All six members of RBI's MPC voted in favour of keeping rate unchanged.
Realtors are deeply disappointed with RBI's decision since real estate sector is ailing and could have been boosted by a rate cut. Exporters are dejected as well given the worsening situation of financing conditions in the manufacturing sector.
Stock markets were pinning hopes on a rate cut by RBI and fell over 100 points as reaction to announcement. However this can be good news to those relying on income from fixed deposits as FD rates may not be dropping anytime soon. According to experts, competition is intensifying between banks and they may lower their own rates benefiting home lenders in particular.
