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5 Quick Takeaways from the RBI Monetary Policy


The Reserve Bank of India today held repo rates steady, despite a sharp decline in inflation in the last few months. Here are quick takeaways from the RBI policy which hardly had any surprises.


1) Interest Rate Cut Put on Hold

There was some belief that the Reserve Bank of India would cut the repo rates.

5 Quick Takeaways from the RBI Monetary Policy
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Repo rates are rates at which the RBI lends money to banks. A cut in repo rates reduces costs for banks and they tend to reduce interest rates on loans. It may also tend to bring down bank deposit rates.

2) Fears of Inflation

The Reserve Bank of India clearly is worried about inflation. "The key uncertainty is the durability of this upturn. The full outcome of the north-east monsoon will determine the intensity of price pressures relating to cereals, oilseeds and pulses, but it is reasonable to expect some firming up of these prices in view of the monsoon's performance so far and the shortfall estimated for kharif production, " the central bank has said.

Over the next 12-month period, inflation is expected to retain some momentum and hover around 6 per cent


3) Comfortable Liquidity in the Banking System

The RBI has found that banks and flush with funds and liquidity position is good, which is one reason why it did not cut the CRR.
"Liquidity conditions have eased considerably in Q3 of 2014-15 due to structural and frictional factors, as well as the fine tuning of the liquidity adjustment framework. With deposit mobilisation outpacing credit growth and currency demand remaining subdued in relation to past trends, banks are flush with funds, leading a number of banks
to reduce deposit rates," the RBI has noted.

4) Interest Rate Cuts May Happen Early Next Year
A change in the monetary policy stance at the current juncture is premature. However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next
year, including outside the policy review cycle, the RBI said.

5) Banking Stocks Trade Flat

Banking stocks were trading flat after the RBI's policy as the policy itself was largely in line with what economists were predicting. Select Banking stocks like Punjab National Bank and Bank of Baroda were trading with gains.

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