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RBI Holds Interest Rates Steady In Monetary Policy


The Reserve Bank of India (RBI), as was widely expected kept interest rates steady, in its Dec Monetary Policy meet. This was largely in line with expectations and keeping in view the inflation trajectory, which has been trending higher. The CRR has also been kept steady by the central bank.

RBI Holds Interest Rates Steady In Monetary Policy
The Reserve Bank of India in late Sept, had cut the repo rate by 50 basis points to 6.75 per cent, which was also a four and half year low. The RBI has already cut interest rate by 125 basis points this year and RBI policy rates now stand at 6.75 per cent.

It's likely that there maybe no more interest rate cuts by the RBI, until after the Union Budget 2016-17. They are likely to watch the Union Budget and also, the likely interest rate hike in the US and its impact.

The country's central bank said in a monetary policy release, " The Reserve Bank will follow developments on commodity prices, especially food and oil, even while tracking inflationary expectations and external developments.

The implementation of the Pay Commission proposals, and its effect on wages and rents, will also be a factor in the Reserve Bank's future deliberations, though its direct effect on aggregate demand is likely to be offset by appropriate budgetary tightening as the Government stays on the fiscal consolidation path."

The RBI has also been disappointed on transmission of interest rates. "In the meantime, since the rate reduction cycle that commenced in January, less than half of the cumulative policy repo rate reduction of 125 bps has been transmitted by banks," a release stated.

Inflation has been trending higher and hit 5 per cent in Oct from 4.4 per cent in Sept. This is likely to continue, especially due to an increase in food prices.The next RBI Monetary Policy also may not see any interest rate cuts, as the RBI has already front loaded interest rates.

Read more about: rbi monetary policy
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