RBI Maintains Status Quo in the Monetary Policy

In Line with the market expectations, the RBI kept its key lending rate unchanged at 6.50% however declared that it has enough provisions and place to accommodate rate cut in next monetary policy. On the other hand, the reverse repo rate remain unchanged at 6.00% and CRR (Cash Reserve Ratio) was kept at 4.00%.

RBI Governor Rajan has mentioned that there is possible inflationary risk beyond 5% threshold for March 2017 and expects GST to boost the business sentiment and bring investment in financial market.

GDP forecast retained at 7.60% for March FY17 by RBI governor. Till date RBI has cut its lending rate by 150 basis points and only 90 basis points has been transferred by the banks to end customers.

Governor Rajan was concerned that banks were not in a position to pass on the complete benefits of lower interest rates to the consumers as their balance sheets have been heavily dented by high NPA margins. However at the same time he was confident that banks may soon clear up their balance sheet and then pass on the benefits to the end user.

In his parting speech the Governor indicated that next policy would be conducted under MPS (Monetary Policy Committee). It is expected that better decision can be taken unanimously under this new system which will constitute 6 members the Governor, a Deputy Governor, another official and including three independent members to be selected by the Government.

Governor Rajan mentioned that the Government was supportive in clearing NPA’s that crippled the health of the Indian banks. In his last monetary policy Rajan ended with a positive note saying that he added value to his experience working as RBI governor of India.

Reacting to RBI announcement on policy decision, benchmark Index recovered from day’s low of 8671. Nifty share price gave an upside movement to 8705; however it did not sustain the upward movement and made low of 8638. Bank Nifty share price made low of 18838 day’s high for the index was at 19008. Advance decline as per NSE was 532 advances and 1037 declines. Nifty gainers were Tata Power share price was up by 3.92%, Infratel share price by 1.59% and losers were Idea share price by 5.63%, Lupin share price down by 3.32% and Ambuja Cement was negative 2.17%.

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