Rates Remain Unchanged As RBI Becomes Cautious
May 24, 2017 Home Loan
There are some legitimate reasons why the experts felt that the Reserve Bank of India (RBI) would cut rates to a certain extent. But the six-member monetary policy review committee, headed by RBI Governor Urjit Patel, unanimously decided to hold rates in its Sixth Bi-monthly Monetary Policy for 2016-17 on February 8.
The reasons are:
The domestic economic conditions are showing signs of recovery with the lowering of inflation rates in India.
In a poll conducted before Union Finance Minister Arun Jaitley by Reuters, 46 participants out of 28 participants expected that the Central bank would reduce repo rate by 25 basis points. The poll also presented before the finance minister the annual Budget 2017-18. A 50-basis point cut was also expected. The members of the committee garnered such expectations based on the promise by the Union Minister that: the government in the Union Budget would apply fiscal prudence if the inflation eased.
Although in December, Consumer Price Index-based inflation fell to a two-year low; which is below the Central bank's March-end 2017 target of five per cent, the rates did not change.
It is known to all that the Indian economy is gradually recovering from the demonetization blow. Moreover, in its December policy review, the RBI had termed the impact of the move as "transitory".
Why RBI had to remain cautious?
Invariably there are few potent reasons behind this decision. They are as follows:
Although the review committee was targeting to bring headline inflation closer to 4.0 percent on a "durable basis" in a “calibrated manner”, "uncertainty" surrounding the direction of US macroeconomic policies "with potential global spillovers" prompted it to exercise caution.
International financial markets turned volatile from mid-January.
Change in economic policies of the new US administration.
There are still few reasons, why you should not be disappointed altogether:
The news might have been disappointing to all the real estate developers along with others, but the home buyers should console themselves from realising the fact that even if the Central bank has decided to slash rates, banks would have been unwilling to pass it on to you.
Not only that, a Business Standard report had said banks might not revise rates in the near term even if the RBI reduced rates in its monetary policy review.
As all the standard banks are replete with money accumulated from people because of the Central government's demonetisation drive, the major banks have reduced lending rates up to 80 basis points, including state-run lenders. A report by CARE rating states that the marginal cost-based lending rate (MCLR) has been significantly lowered to 7.98 percent in January 2017 from 9.05 percent in April 2016.
Few problems that have cropped up due to this:
Heavy credit cost and low loan growth have not left room for any further reduction.
That the rates have remained unchanged could also be a reason for steep fall in annual bank loan growth rate which has fallen from 11 percent in January 2016 to 5 percent in January 2017.
The reasons are:
The domestic economic conditions are showing signs of recovery with the lowering of inflation rates in India.
In a poll conducted before Union Finance Minister Arun Jaitley by Reuters, 46 participants out of 28 participants expected that the Central bank would reduce repo rate by 25 basis points. The poll also presented before the finance minister the annual Budget 2017-18. A 50-basis point cut was also expected. The members of the committee garnered such expectations based on the promise by the Union Minister that: the government in the Union Budget would apply fiscal prudence if the inflation eased.
Although in December, Consumer Price Index-based inflation fell to a two-year low; which is below the Central bank's March-end 2017 target of five per cent, the rates did not change.
It is known to all that the Indian economy is gradually recovering from the demonetization blow. Moreover, in its December policy review, the RBI had termed the impact of the move as "transitory".
Why RBI had to remain cautious?
Invariably there are few potent reasons behind this decision. They are as follows:
Although the review committee was targeting to bring headline inflation closer to 4.0 percent on a "durable basis" in a “calibrated manner”, "uncertainty" surrounding the direction of US macroeconomic policies "with potential global spillovers" prompted it to exercise caution.
International financial markets turned volatile from mid-January.
Change in economic policies of the new US administration.
There are still few reasons, why you should not be disappointed altogether:
The news might have been disappointing to all the real estate developers along with others, but the home buyers should console themselves from realising the fact that even if the Central bank has decided to slash rates, banks would have been unwilling to pass it on to you.
Not only that, a Business Standard report had said banks might not revise rates in the near term even if the RBI reduced rates in its monetary policy review.
As all the standard banks are replete with money accumulated from people because of the Central government's demonetisation drive, the major banks have reduced lending rates up to 80 basis points, including state-run lenders. A report by CARE rating states that the marginal cost-based lending rate (MCLR) has been significantly lowered to 7.98 percent in January 2017 from 9.05 percent in April 2016.
Few problems that have cropped up due to this:
Heavy credit cost and low loan growth have not left room for any further reduction.
That the rates have remained unchanged could also be a reason for steep fall in annual bank loan growth rate which has fallen from 11 percent in January 2016 to 5 percent in January 2017.
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