RBI keeps interest rates same, markets follow remaining flat

As expected, the Reserve Bank of India (RBI) on Tuesday decided to keep key interest rates unchanged in its 5th bi-monthly meeting, while markets reacted to the decision registering a slight decline or remaining flat.

The apex bank kept the repo rate, or the interest that banks pay when they borrow money from the RBI to meet their short-term fund requirements, unchanged at 8 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 adjusted to 7 percent.

The Cash Reserve Ratio (CRR) is left unchanged at 4 percent. The marginal standing facility rate and the bank rate is also kept unchanged at 9 percent.

The statutory liquidity ratio (SLR), the mandatory amount of bonds lenders must keep with the RBI, has been maintained to 22 percent of their net demand and time liabilities (NDTL).

Meanwhile, sensex of Indian equities markets was trading 64 points or 0.22 percent down, as the heavy selling pressure was seen in interest-sensitive stocks like automobiles, information technology (IT) and banks, though healthy buying was observed in the capital goods, healthcare and metal sectors.

The 30-scrip Sensitive Index (Sensex) of the S&P Bombay Stock Exchange (BSE), which opened at 28,522.46 points, was trading at 28,495.79 points (at 11.10 a.m.) in the early session, down 63.83 points or 0.22 percent from the previous day’s close at 28,559.62 points.

The Sensex touched a high of 28,541.96 points and a low of 28,386.46 points in the trade so far.

RBI Governor RaghuRam Rajan said that he will wait and watch the inflation situation before going in for the rate cut.

“After 4-5 years of very high inflation. We want the lowering in inflation to be for real and we don’t want any flip-flop going forward if there is some dramatic change tomorrow. There should be change and change should be for good,” RBI Governor RaghuRam Rajan said.

The markets were hoping against hope for a rate cut by the RBI, as recent economic data showed easing of retail and consumer inflation coupled with a down turn in industrial and gross domestic product (GDP) expansion.

Geojit BNP Paribas’ head – fundamental research, Vinod Nair said the RBI’s commentary has given a clear statement about the framework on ‘when and why’ will a possibility for a cut rate arise. “RBI did not cut rate but has given a clear statement on by when it expects to carry out a rate cut,” Nair told IANS.

The S&P auto index plunged by 165.96 points, IT went down by 90.38 points and bank index slipped by 55.87 points. However, capital goods index rose 140.29 points, followed by healthcare index which gained by 63.21 points and metal index was higher by 54.89 points.

The wider 50-scrip Nifty of the National Stock Exchange (NSE) was also trading in the red. It was down 3.90 points or 0.05 percent at 8,552 points. (IANS)

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