High EMIs on loans to remain as RBI keeps lending rates intact

Written by: IANS
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Mumbai, Dec 2: High interest rates on automobile and house loans will continue as the Reserve Bank of India (RBI) Tuesday decided to keep key interest rates unchanged in its fifth bi-monthly policy review of the current fiscal.

RBI Governor Raghuram Rajan said that a change in the monetary policy at the current juncture will be premature and that he will wait for the decrease in inflation to continue.

High EMIs on loans to remain as RBI keeps lending rates intact.
RBI had kept a target for bring down inflation by six percent in 2015. Current data has shown that the country's annual retail inflation eased to a record low of 5.52 percent in October. The wholesale inflation has also dipped. It was down to 1.77 percent from 2.38 percent.

At the same time, factory output, measured by the Index of Industrial Production (IIP), grew by just 2.5 percent during September pointing towards the persistent weakness in spurring manufacturing activity.

"The policy is lead by the data we are receiving and we need to be relatively sure that there is a moderation in inflation. We don't want any flip-flop in the future. Inflation is not a one way street," Rajan said.

"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," the RBI added.

In his monetary policy statement Rajan admitted that weak demand and the rapid pace of recent disinflation are factors supporting monetary accommodation, by the way of interest rate cut.

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).

The central bank's action is on expected lines as most analysts had predicted a status quo, considering the macro-economic situation and current data.

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 there be a possibility for a cut rate arise.

"RBI has given a clear statement on by when it expects to carry out a rate cut. The Governor wants to be sure about the inflationary pressure before going in for a rate cut," Nair told IANS.

"Continuous increase in rupee may tend RBI to wait and understand the trajectory post Nov 2014 due to base impact as mentioned in Sep 14 policy."

The markets were disappointed as they were hoping against hope for a rate.

The benchmark index of Indian equities markets was trading 165 points or 0.58 percent down, as interest sensitive stocks like automobile, bank, consumer goods and realty sectors declined.

The 30-scrip Sensitive Index (Sensex) of the S&P Bombay Stock Exchange (BSE), which opened at 28,522.46 points, was trading at 28,394.64 points (at 12.00 p.m.), down 164.98 points or 0.58 percent from the previous day's close at 28,559.62 points.

The wider 50-scrip Nifty of the National Stock Exchange (NSE) was also trading in the red. It was down 37.55 points or 0.44 percent at 8,518.35 points.

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