The Reserve Bank of India (RBI) today held interest rates steady, as was largely expected. The country's central bank had surprised investors by cutting repo rates by 50 basis last year in Sept and to an extent had front loaded interest rate cuts. The RBI also left CRR rates unchanged in today's Feb Monetary Policy meet.
Inflation, particularly retail inflation has been edging up and this may have played on the mind of policy makers at the RBI.
The country's central bank may also look at the Union Budget to see how steps with regards to consolidation are happening, before deciding on interest rate cuts. In fact, the statement of the RBI sounded pretty hawkish as compared to any dovish statement.
"CPI inflation excluding food and fuel rose for the fourth successive month. Excluding petrol and diesel from this category, inflation remained flat. A breakdown into goods and services categories shows that while goods inflation declined, services inflation has been sticky since September 2015 across housing, transport and communication, medical and other services. Household inflation expectations
remain elevated and the rate of increase in corporate staff costs picked up. On the other hand, rural wage growth has been muted.
The country's central bank also remained worried about the inflation trajectory due to the 7th Pay Commission. "However, the
implementation of the VII Central Pay Commission award, which has not been factored into these projections, will impart upward momentum to this trajectory for a period of one to two years," the RBI has said.
Indian stock markets reacted negatively to the RBI policy. The Sensex which was trading marginally higher before the policy announcement fell and dropped by 11 points. Most of the banking stocks were trading flat with the Bank Nifty marginally lower in trade. ICICI Bank, Yes Bank and HDFC Bank were among the losers in trade.