RBI maintains key rates, but eases liquidity (Intro Roundup)


As anticipated, Reserve Bank of India's Monetary Policy Committee (MPC) on Wednesday chose to maintain the status quo by keeping the repo rate unchanged at 6 percent, despite concerns of a slowdown in the economy.

"Specified stock exchanges, in addition to scheduled banks and primary dealers (bond houses), will be permitted to act as aggregators/facilitators for retail investor bids in the non-competitive segment for the auction of dated securities and treasury bills of the Government of India", RBI said in its bi-monthly policy statement. "Considering that the economy needs immediate measures for revival of growth, at least 2 to 3 rate cuts of 25 bps can be expected going ahead".

"We do not expect a rate cut in the upcoming policy review as consumer price index (CPI) inflation is expected to chart an upward trajectory over the coming months, and print between 4.5 percent and 5 percent in March 2018", ICRA MD Naresh Takkar said in a report earlier this week. MPC has revised down the growth projections sharply to 6.7% from 7.3% for current year and also revised H2 inflation projection marginally to 4.20-4.6% from 4-4.5%.

The committee headed by Janak Raj, principal adviser, monetary policy department, recommended that all floating rate loans advanced from April could be referenced to one of three external benchmarks.

Meanwhile, crude prices hit a high of $59.49 last week.

Should demand stay low, there might be a downward revision in rates and vice versa. As rightly noted in the committee's communiqué no 115 issued at the end of its meeting, "Global output is projected to improve further in 2017, as growth forecast by the International Monetary Fund in its July World Economic Outlook was projected at 3.5 per cent, up from 3.2 per cent in 2016".

The key indices also rose on the back of positive global cues and value buying.

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The NSE Nifty too was trading higher by 25.70 points, or 0.26 per cent, at 9,885.20. One basis point is 0.01%.

RBI has also decided to make it mandatory for corporate borrowers having aggregate loan exposure of Rs 5 crore and above from any bank to obtain Legal Entity Identifier (LEI) registration and capture the same in the Central Repository of Information on Large Credits (CRILC).

"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".

Consequently, the 30-scrip Sensitive Index (Sensex) of the BSE plunged by 638.72 points or two per cent to close at 31,283.72 points. "Of the 12 banks whose spreads widened, six banks took up to six months to pass on the benefit of lower MCLRs to their lending rates; the remaining six banks passed on the benefit of their lower MCLRs, but only partially even after six months".

As the bank acknowledged the growing upside risks to the inflation outlook, a renewed policy loosening is unlikely, Shilan Shah, an economist at Capital Economics, said.

The MPC said structural reforms introduced in the recent period will likely be growth augmenting over the medium-to long-term by improving the business environment, enhancing transparency and increasing formalisation of the economy.