The Reserve Bank of India's Monetary Policy Committee has left the key repo rate unchanged at 6%, as widely expected. The reverse repo rate stands unchanged at 5.75%.
The MPC, headed by RBI Governor Dr Urjit Patel is said to have voted 5-1 in favour of the status quo on both repo rate and reverse repo rate.
Announcing its fourth bi-monthly monetary policy, the central bank this afternoon chose to hold the repo rate unchanged at 6%, but cut the statutory liquidity ratio (SLR) by 50 basis points to 19.5%. This shall become effective from October 14. The bank rate and marginal standing facility have been kept unchanged at 6.25%.
The apex bank has revised the GVA growth forecast for financial year 2017-18 to 6.7%, from earlier forecast for a 7.3% growth.
Although several analysts had anticipated this move on the repo rate by the central bank, some bankers had been expecting a 25 basis points cut in the rate, citing falling industrial production.
However, the sharp increase in inflation appears to have prompted the central bank to hold rates.
While coming out with its policy statement, the central bank noted that the real gross value added growth seen at 6.4% for July-September, 7.1% for October-December quarter and 7.7% for January-March quarter. For the financial year 2018-19, the bank expects reall gross value added growth to be 7.4%.
The central bank expects inflation to rise from its current levels to 4.2-4.6% in the second half of this fiscal and is of the view that household consumption demand may get a boost from a revision in allowance for government employees.
Noting that manufacturing weakness still persists, the bank said that core CPI inflation so far is somewhat higher than expected. The bank expects the GST-related teething problems to get resolved soon and that growth will accelerate in the second half of this fiscal.
Meanwhile, notwithstanding the central bank's decision to hold rates, shares from rate sensitive banking, automobile and realty sectors are mostly steady this afternoon. Fairly good sales data for September lifted key automobile stocks higher in the previous session and most of these stocks still manage to attract investors.
Mahindra & Mahindra and Tata Motors are up 1.75% and 1.5%, respectively. Bajaj Auto, Hero Motocorp and TVS Motor are up with modest gains, while Maruti Suzuki and Ashok Leyland are hovering around their previous closing levels. Eicher Motors is down marginally.
In the realty space, Godrej Properties is up nearly 4% and Phoenix is gaining 2%. Oberoi Realty is up 1% and Prestige is up 0.5%. DLF, Indiabulls Real Estate and HDIL are flat.
In the banking space, Kotak Bank, Punjab National Bank, Yes Bank, IndusInd Bank, Bank of Baroda and State Bank of India are up 1% - 2%. Federal Bank and Canara Bank are modestly higher, while Axis Bank, ICICI Bannk, HDFC Bank and IDFC Bank are flat.
