RBI Monetary Policy Committee leaves key interest rate unchanged

The Reserve Bank of India has left the repo rate unchanged at 6.5 per cent, for the second time in a row, while also maintaining its earlier stance of 'calibrated tightening' of policy

The Reserve Bank of India (RBI), in its last monetary policy review for the calendar year 2018, on December 5, 2018, left the repo rate unchanged while maintaining the stance of ‘calibrated tightening’ of policy. The key rate remains unchanged at 6.5 per cent. This is for the second time in a row that the central bank did not tinker with the interest rate.

The reverse repo rate stands at 6.25 per cent, bank rate at 6.75 per cent and the cash reserve ratio (CRR) at four per cent.

“The decision of the Monetary Policy Committee is consistent with the stance of calibrated tightening of monetary policy, in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of four per cent within a band of +/-2 per cent, while supporting growth,” the RBI said. While the decision on keeping the policy rate unchanged was unanimous, Ravindra H Dholakia voted to change the stance to neutral.

See also: SC seeks RBI’s response on plea over banks not passing on benefits of low interest rates

The decline in crude oil prices, is expected to boost growth prospects, the central bank said, while retaining the GDP growth projection for FY19 at 7.4 per cent. For the first half of 2019-20, the GDP growth has been projected at 7.5 per cent. The RBI said inflation in the second half of the current fiscal is projected at 2.7-3.2 per cent.

The unchanged monetary policy of the RBI, will enable a steady growth in the market, as the repo rate has remained steady for the second time in a row, said Rohit Poddar, managing director, Poddar Housing and Development Ltd. “This move by the RBI will help the market to recover from the earlier structural revamp in the industry. From the perspective of a home buyer, it is a good time to avail of the offers available in the market,” Poddar added.

According to Shishir Baijal, chairman and managing director, Knight Frank India, the decision to keep the key policy rates unchanged, was on expected lines and will be a relief for the real estate industry that has been worried over a possible rate hike adversely impacting the market. “Since the last Monetary Policy Committee meeting, there has been a big relief with the fall in crude prices and the strengthening of the rupee, thus, reducing inflationary risk. We believe the easing inflation situation and the need to actively support growth, were the primary considerations for the MPC to maintain a status quo on rates,” Baijal explained.

The unchanged repo rate at 6.5 per cent comes as a major relief to the real estate sector, as the BFS sector is facing a liquidity crisis, resulting in a slowdown in sanctions, approvals and disbursements, agrees Parth Mehta, managing director, Paradigm Realty. “Over the year, the rate hikes have resulted in higher home loan interest rates, thus, impacting the demand. This, along with GST, were major deterrents to demand for under-construction projects. The fall in crude prices has arrested the fall of rupee, which may have induced the RBI’s decision to keep the rates unchanged,” he said.

(With additional inputs from Housing News Desk)

 

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