Industry expects positive outcome from unchanged repo rate by RBI

Maintaining status quo as it did the last time, the Reserve Bank of India (RBI) on Thursday kept unchanged the repo rate at 6.25 per cent, reports said after a Monetary Policy Committee meeting.

However, it raised the reverse rate to 6 percent from 5.75 percent.

Reacting to the decision taken by RBI, MD and CEO of ICICI Bank, Chanda Kochhar said: "RBI’s clear articulation on liquidity management is welcome and would ensure stability in markets by enforcing the sanctity of the operating rate while addressing temporary liquidity imbalances. Money market rates would be anchored in a tighter band through the narrowing of the LAF corridor. RBI’s continued focus on inflation targeting will reinforce confidence in the Indian economy and continue to support capital inflows."

"The focus on resolution of stressed assets will help in renewing confidence and boosting investment and aggregate demand going forward. Along with these, the policy also articulates other important developmental policies, such as expanding the investor base in REITs which would help to expand and deepen domestic financial markets" she added.

In last monetary policy review too, the RBI had kept repo rate unchanged.

R. Sivakumar, Head  - Fixed Income, Axis Mutual fund said: “RBI left rates unchanged as the markets had expected. The markets were expecting some action from the RBI on the persistent excess liquidity which was keeping the overnight and short term money market rates well below the policy repo rate. The RBI narrowed the corridor of rates under the LAF to 25 bps, effectively hiking the reverse repo rate by 25 bps."

Keeping expections from the government, Kunal Shah, CFA, Fund Manager - Debt, Kotak Mahindra Old Mutual Life Insurance Limited said: "Government’s steps to address supply side measures in past have shown positive results on inflation and so can be expected in the current year if challenged by below normal monsoon.Bond markets will largely remain in the range of 6.7%-6.90% with upcoming supply of bonds, FII inflows apart from watching developments in global markets, crude oil prices and finalization of standing deposit facility if any."

"The current policy stance and upcoming uncertainties may make it difficult to determine future course of policy actions for markets, MPC’s and the bond markets moves will therefore be more data dependent" he added.

Speaking about the unchanged repo rate, RBI Governor said: "It is important to note three significant upside risks that impart some uncertainty to the baseline inflation path -- the hardening profile of international crude prices; volatility in the exchange rate on account of global financial market developments, which could impart upside pressures to domestic inflation; and the fuller effects of the house rent allowances under the 7th Central Pay Commission."

He said  the Cash Reserve Ratio (CRR) has also been kept  unchanged at 4 per cent  and Reverse Repo Rate at 5.75 per cent.