RBI holds repo rates; disappoints markets

Business

oi-Sunil

By Sunil Fernandes

Published: Thursday, March 15, 2012, 12:18 [IST]

The Reserve Bank of India (RBI) today held repo rates steady, as was largely expected, guided by elevated inflation numbers. “Overall inflation at 7% was discomforting. Cannot ignore overall inflation. If there are definite signs of decline we will take action. The guiding factor will be inflation,” RBI Governor, D Subbarao said.

“Recent growth-inflation dynamics have prompted the Reserve Bank to indicate that no further tightening is required and that future actions will be towards lowering the rates. However, notwithstanding the deceleration in growth, inflation risks remain, which will influence both the timing and magnitude of future rate actions,” the RBI stated in a release.

Markets were disappointed as there was no hint from the RBI Governor of a rate cut. The BSE Sensex and the NSE drifted lower as soon as reports of the RBI holding rates were announced. Banking stocks like State Bank and ICICI Bank lost ground following the RBI decision to keep rates unchanged.

RBI might now want to take a look at the Union Budget and the fiscal consolidation measures adopted before a decision on rate cuts is taken.

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