Reserve Bank keeps key interest rates unchanged
The Reserve Bank of India (RBI) Tuesday decided to keep key interest rates unchanged in its sixth bi-monthly policy review.
“We have maintained the status quo (on interest rates). We have taken action on other fronts,” Reserve Bank Governor Raghuram Rajan said at the press conference to announce the policy for the sixth bi-monthly meeting.
Rajan said that the status quo has been maintained as no fresh data on inflation and industrial production has come in since last month.
“We will await for more data and fiscal developments to come in and after that we will make judgement,” Rajan said.
The repo rate, or the interest that banks pay when they borrow money from the RBI to meet their short-term fund requirements, remains unchanged at 7.75 percent.
The reverse repo rate, or the interest that the RBI pays to commercial banks when they park their surplus short-term funds with the central bank, has been maintained at 6.75 percent.
The marginal standing facility (MSF) rate and the bank rate are kept at 8.75 per cent.
The status quo in these key policy rates mean that the equated monthly instalments (EMIs) on home, auto and other loans would remain unchanged.
On Jan 15, the apex bank cut the the repo rate by 25 basis point from 8 percent to 7.75 percent.
Meanwhile, the RBI reduced the statutory liquidity ratio (SLR) which is the mandatory amount of cash, gold, bonds or other securities that banks must keep with it.
The SLR has been reduced by 50 basis points to 21.5 percent of their net demand and time liabilities (NDTL) effective from the fortnight beginning Feb 7, 2015.
The reduced SLR will help inject additional capital in to the financial system. The Cash Reserve Ratio (CRR) is left unchanged at 4 percent.
The central bank’s action is on expected lines as most analysts had predicted a status quo, considering the apex bank had last month cut the repo rate.
However, the equities markets tumbled after the RBI announced its decision to keep key interest rates unchanged. Heavy selling pressure was observed in the interest sensitive sectors like banking, healthcare and capital goods.
The 30-scrip Sensitive Index (Sensex) of the S&P Bombay Stock Exchange (BSE), which opened at 29,217.40 points, was trading at 28,973.25 points (at 12.00 p.m.), down 149.02 points or 0.51 percent from the previous day’s close at 29,122.27 points.
The Sensex has touched a high of 29,253.06 points and a low of 28,901.07 points in the trade so far.
The S&P BSE bankex was down 389.03 points, followed by healthcare index fell 113.73 points and capital goods index was lower by 85.43 points.