EMIs Unlikely to Rise As RBI Leaves Rates Unchanged
With retail inflation rate remain ‘sticky,’ the Reserve Bank of India (RBI), on Tuesday left its benchmark lending rate (repo) unchanged at 8 per cent but took measures to increase liquidity and contain volatility in the money market. The cash reserve ratio too is kept unchanged at 4 per cent.
In its first bi-monthly monetary policy statement, the RBI, besides deciding to officially start using consumer price inflation data to determine its monetary policy, has reduced the overnight call money rate by half to 0.25 per cent and increased the 7-day and 14-day repo limits to 0.75 per cent from 0.50 per cent. The second bi-monthly policy announcement is scheduled on June, 3.
The policy action is expected to keep EMIs for housing and car loans unchanged. According to bankers, interest rates are likely to remain unchanged and there will be no immediate impact on EMIs.
“At the current juncture, it is appropriate to hold the policy rate, while allowing the rate increases undertaken during September 2013-January, 2014 to work their way through the economy,” said Raghuram Rajan, Governor, RBI.
Though inflation rates fell in recent weeks, the RBI said several factors could send prices higher, including a below-average monsoon rainfall, which would hurt food production. But if inflation continues along the glide path of reaching 8 per cent by January, 2015 and 6 per cent the following year, the governmnet promised there won’t be any rate hikes.
Stating that retail inflation could softening in 2014 to under 6 per cent, he said, “Excluding food and fuel...retail inflation remained sticky around 8 per cent. This suggests that some demand pressures are still at play.”
Meanwhile, RBI pegged 2014-15 GDP growth at a central estimate of 5.5 per cent, while CAD is expected to hover around 2 per cent of GDP in FY14.
“Most recently, export growth has slowed partly because of slowdown in demand in partner countries as well as a softening of prices of exports of petroleum products and gems and jewellery (offset by a reduction in the prices of oil and gold imports,” Rajan said adding, “Whether the export slowdown persists as global growth picks up once again remains to be seen. In February, there was a turnaround in portfolio flows as investors largely priced in the effects of taper by the US Fed and responded to economic and geo-political developments in emerging markets with re-allocations.”