May 12, 2021

RBI keeps rate on hold, cuts growth forecast to 6.7%

05 Octubre 2017, 12:46 | Verda Sainz

The Reserve Bank of India (RBI) on Wednesday kept its key lending rate the repo rate unchanged at 6 percent as widely expected. The fiscal shortfall hit 96 percent of the full-year goal in the first five months of the year, compared with 76 percent last year.

Patel also expects inflation to rise to 4.2-4.6% by the end of 2017, prompting experts to predict that the RBI may not cut rates at its next meeting in December too. "Finally, worldwide crude prices, which had started rising from early July, have firmed up further in September", MPC said.

"No surprises as such".

The study noted that large reduction in MCLR was partly offset by some banks with a simultaneous increase in the spread in the form of business strategy premium, ostensibly to reduce the pass-through to lending rates.

The RBI has long made clear that keeping inflation at around 4 percent, the midpoint of its mandated target of 2 to 6 percent, would be its policy priority. GDP growth rate in Pakistan is likely to be constrained by a dismal saving rate while foreign investors continue to be shy due to a host of factors, including growing political uncertainty, poor infrastructure and confrontation at borders.

"Trading on electronic platforms is being encouraged across the world as it enhances pricing transparency, processing efficiency and risk control, " said RBI.

The RBI, in its Wednesday policy meeting, sharply revised downward its growth forecast for the Indian economy to 6.7 percent for FY18, from a previous forecast of 7.3 percent.

Bankers however are of the view that the Reserve Bank of India (RBI) would maintain status quo as inflation has risen. "I don't see any increased tensions between them". A recent note from rating agency Crisil showed that there is a marked improvement in the credit profile of the companies it rates in the recent months.

Nevertheless, there is tremendous pressure on the MPC to cut rates in the backdrop of the sharp slowdown in economy and other drivers of growth failing to fire.

"On the backdrop of lackluster domestic macros, likelihood of extension of GST disruption and continued impact on corporate earnings, the current domestic premium valuation will not sustain and we expect consolidation to continue in near term".

The MPC may also have concerns about emerging upward pressures on inflation.

In its last review in August, it had lowered the benchmark lending rate by 25 basis points to 6%, the lowest in six years.

The RBI said that after a record low in June, inflation is trending up and estimated the headline number to touch 4.6 per cent by the March quarter.

Lead Economist at Deloitte, Anis Chakravarty, felt the onus now was on the policy makers to give economy a boost by trying to resolve the NPA (non-performing assets) issue faster by "restarting stalled projects and increasing the ease of execution in the economy". "Ideally speaking RBI is required to act as an independent entity in the best interest of the nation".

"There is very little evidence to suggest anything which should have marked up their inflation forecast. A maximum of 25 bps is possible, if US says they won't crunch liquidity anymore".

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