There were no surprises in the first policy announcement of the new fiscal.

The Reserve Bank of India maintained status quo and retained the repo rate at 6.25 per cent in the first policy announcement of the new fiscal. The decision by the 6-member monetary policy committee was unanimous.

The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

The review comes in the backdrop of the likelihood of ‘El Nino’ disrupting monsoon rainfall and exerting upward pressure on food prices, and rising global oil and commodity prices.

RBI narrowed the policy rate corridor due to liquidity flush. It has cut the marginal standing facility rate and bank rate to 6.50%.

Raises outlook for GDP growth

The RBI has however hiked its outlook for GDP growth to 7.4 per cent in this fiscal from 6.7 per cent last year. Inflation is expected to average around 4.5 per cent in the first half and 5 per cent in the second half.

Several indicators point to modest improvement in microeconomic outlook, the RBI said today.

Stating that risk is evenly balanced around inflation trajectory, the RBI said there is upside risk from uncertainty about monsoon.

Stocks in red

Market benchmark BSE Sensex was trading lower by 63 points at 29,911.37 in late afternoon trade after the RBI kept its key policy rate unchanged.

The 30—share index, which had lost about 122 points in the opening trade, was quoting 62.87 points, or 0.21 per cent lower at 29,911.37 soon after the RBI announced its first bi—monthly monetary review of this fiscal.

The barometer had gained over 353.74 points in the previous two sessions.

The wider National Stock Exchange index Nifty dropped 21.55 points or 0.23 per cent to 9,243.60.

Brokers said RBI’s decision to keep key interest rate unchanged was largely in line with investor expectations.

The BSE banking index was trading little changed at 24,711.29 points.

However, the BSE Realty index was quoting 2.63 per cent higher at 1,715.19 points.

Among rate sensitive scrips, ICICI Bank fell 0.93 per cent to Rs 282.20, while state—run SBI was down 0.29 per cent at Rs 295.85.

On expected lines

“The RBI left rates unchanged as the markets had expected," according to R Sivakumar, Head-Fixed Income, Axis Mutual Fund. “As the RBI is on hold for the moment, we expect short term bonds to outperform long bonds. Short bonds are less sensitive to the policy outlook as well as to global risks.”

Says Chakri Lokapriya, MD & CIO, TCG AMC: “Reverse Repo increased to 6 per cent is incrementally positive for banks. “Importantly, RBI has announced that banks can start to invest in REITs, which is a positive measure for both banks and real estate developers. For banks it offers an additional important asset class for investing and brings liquidity. For commercial real estate companies, it brings in liquidity, and frees up capital which lowers their cost of capital.”

DK Srivastava, Chief Policy Advisor, E&Y: “This is along expected lines. Repo rate has not been changed because there is an upward risk to inflation that is being anticipated, while growth appears to be turning positive in RBI's view. They are basically focused on inflation. The main thing is that neutral stance is being maintained.”