Inflation concern led RBI to keep rates unchanged: Bankers
Deccan Chronicle | DC Correspondent
The repo rate will continue to stay at the six year-low of 6.25 per cent.
Indian Banks' Association Chairman and Central Bank of India CMD Rajeev Rishi.
Mumbai: Concern over inflation weighed heavily on RBI when it decided to maintain status quo on policy rates today, bankers said. Prospects for further cuts in key policy rates in the near future have receded after the apex bank shifted the stance of the monetary policy from 'accommodative' to 'neutral', they said.
The six-member Monetary Policy Committee (MPC) unanimously decided to keep the repo rate unchanged for the second time in a row. The repo rate will continue to stay at the six year-low of 6.25 per cent.
"Concern over inflation was the key driver behind the RBI's decision to press the 'pause' for a rate cut in this bi- monthly policy statement," said Indian Banks' Association Chairman and Central Bank of India CMD Rajeev Rishi in a statement.
"Shift from the 'accommodative' to 'neutral' stance and the announcement of inflation range for the first half and second half within the overall corridor of 4+/-2 per cent indicate a concern on the price level in near future," he said.
According to Rishi, assurance of effective liquidity management and the need for quicker resolution of stressed assets, recapitalisation of public sector banks and linking the interest rates on small savings schemes to changes in yields on G-sec of corresponding maturity etc, goes well with the needs of the banking sector. A section of bankers does not see any rate cut in policy rates in near future.
"Since RBI has changed its stance from `accommodative' to `neutral', the prospects of further cuts in policy rate in near future have receded," Bank of India Managing Director and Chief Executive Melwyn Rego said.
According to Rego, the primary objective of inflation targeting has played a major role here as the move seems to be wary of hardening global commodity prices, strengthening USD and stickiness in domestic core inflation.
The statement remains committed to maintaining headline inflation closer to 4 per cent in a calibrated manner, as RBI remains watchful of transient impact of demonetisation on price levels and output gap, he said.
ICICI Bank MD and CEO Chanda Kochhar said the decision to keep the policy rate unchanged and shift in stance from accommodative to neutral is based on a judicious assessment of risks going forward.
The monetary policy committee has highlighted concerns around the global policy environment, impact of rising global commodity prices and domestic inflation. Kochhar said the focus on the medium term inflation target of 4 per cent and the emphasis laid on a durable inflation trend will be growth-supportive.