RBI leaves key interest rates unchanged

Despite concerns over price rise and a weakening rupee, the Reserve Bank of India has opted to keep key policy rates unchanged at its monetary policy review

The Reserve Bank of India (RBI) opted for a surprising status quo, at the bi-monthly review, on October 5, 2018, on expectations of a softening price rise but changed the policy stance to ‘calibrated tightening’ from ‘neutral’. Consequently, the repo rate, at which the RBI lends to the system, will continue to be at 6.5 per cent and the reverse repo at which it absorbs excess funds will be 6.25 per cent.

The Monetary Policy Committee (MPC) voted 5:1 in favour of a status quo, with only Chetan Ghate voting for a 0.25 per cent hike. A majority of the analysts and bankers were expecting the six-member MPC to go at least for a 0.25 per cent hike in key rates at the review.

Reacting to the status quo, Shishir Baijal, chairman and managing director, Knight Frank India said, “The RBI had hiked the policy rates by 50 bps in the previous two policy reviews. Despite global and domestic macro-economic headwinds of rising interest rates in the US, rising crude prices, threat of crude oil-fuelled inflation, weaker currency and FII outflows, the RBI has paused rate hikes for now. While we are in a rising interest rate cycle now, the pause will provide a temporary relief to home buyers’ sentiments and support the festive season demand.”

Jaxay Shah, president, CREDAI National, added that the “RBI’s decision to keep the repo rate unchanged, comes as a relief for the developers, home buyers and real estate stakeholders at large. However, the economy is too precariously poised for real estate to pull itself by its bootstraps. We hope, in particular, for decisive steps to end the credit freeze.”

The RBI, in its statement warned that risks include oil prices, which remain vulnerable to further upside pressures. Global, domestic financial conditions have also tightened and may dampen investment activity, it said. “The MPC reiterates its commitment to achieving the medium-term target for headline inflation of four per cent on a durable basis,” the resolution of the MPC, after a three-day meet said. The MPC headed by RBI governor Urjit Patel said that the recent excise duty cut by the government on petrol and diesel, will help contain inflation.

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Source:housing.com