Published On: Tue, Jun 14th, 2016

Reserve Bank of India kept the key repo and reverse repo rates unchanged in the second bi-monthly review

The Reserve Bank of India kept the key repo and reverse repo rates unchanged in the second bi-monthly review for the current financial year. Though some sections of the industry were expecting a reduction of 25 bps, the bank maintained a ‘status quo’ in its report produced on 7 June’ 16.

The repo rate which stands for repurchase option rate or the rate at which the RBI lends to commercial banks remained 6.5% while the reverse of this, the rate at which banks park money with the central bank, known as the reverse repo rate remained 6%.

Explaining the reasons behind the unchanged rates, RBI Governor, Raghuram Rajan, said that incoming data indicated an inflationary pressure larger than anticipated, radiating from a number of food items as well as a reversal in commodity prices. Hence, RBI chose to remain cautious and wished for the inflation to settle down.

Reserve Bank of India kept the key repo and reverse repo rates unchanged in the second bi-monthly review

However, he mentioned that a vigorous monsoon and a steady expansion in supply capacity could help combat this pressure. Though the rainfall is expected to be above average this year, any drop in the expectations might further spoil the situation.

Among others, real estate sector in particular, was very hopeful of a rate cut. It is struggling to generate sales and is over-burdened with piling logs. A rate cut, now, would have helped bring relief to them by convincing buyers and boosting sales. Though disappointed by the review, who’s who of the real estate showed confidence in the bank’s exposition.

Atul Banshal, President, Finance & Accounts, M3M Group said, “Indian Government has been successfully rolling out several initiatives and reforms to pull back the economy on track. With Government’s determination to streamline India’s overall economy, RBI should have complimented these steps by softening interest rates. Market aspirations were also looking forward to such move, which would have surely aggregated positive buyer sentiments especially for real estate and automobile sectors. While Indian economy is showing some encouraging signs, it was the opportune moment to offer moves that would have ascertained steady momentum”.

“We welcome the decision for a better prospect as it seems that it wants to create conducive environment for the economic growth and anticipate for a positive outcome. However, a reduction in policy rates at this stage would have been highly favorable for real estate industry which is reeling under low-demand pressure since long. Going forward, we expect RBI to cut rates in its monetary policy in order to revive the sentiment of the real estate sector”, said Rajesh K Gouri, Vice President, Homestead.

About the Author

- Paul Linus is an eminent online journalist who has been writing news, features and editorials on different websites from across the world for about a decade.

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