RBI Hikes Repo Rate by 25 bps to 6.25% For First Time in 4 Yrs
RBI raised key interest rate on 6 June by 25 basis points to 6.25%, for the first time in four-and-half-years
RBI Monetary Policy Committee Begins 3-Day Meet
RBI's Monetary Policy Committee (MPC) began a 3-day meeting on Monday.
The six-member MPC, headed by RBI Governor Urjit Patel, is meeting for three days for the first time instead of the usual two days due to some administrative exigencies.
The resolution of the second bi-monthly monetary policy meeting in the current financial year, 2018-19, will be made public on Wednesday afternoon.
It was in January 2014 that the RBI had last raised the short-term lending rate (repo) to 8 percent; since then it has either reduced it or maintained status quo.
Key Interest Rate to Go Up?
The current repo rate stands at 6 percent.
The 7-quarter high GDP growth rate of 7.7 percent in the January-March quarter of 2017-18 and forecast of a normal monsoon have reduced the clamour for a cut in the benchmark lending rate (repo).
Retail inflation, a key data for RBI, has remained above 4 percent since November 2017. Besides, oil prices have been rising for the past few months. While petrol in Delhi costs Rs 77.96 a litre, diesel is at Rs 68.97 per litre.
The government has mandated the RBI to restrict the retail inflation at 4 percent (with a margin of +/- 2 percent), while supporting growth.
Indicating hardening of the interest rate scenario, several major lenders including SBI, PNB and ICICI Bank have already raised their lending rates from 1 June. Some of the banks have also increased the deposit rates.
Elevated Borrowing Costs May Rise Further If RBI Hikes Rates
Even before India’s Monetary Policy Committee decides to hike interest rates, corporates and retail borrowers have seen borrowing costs rise. Should the MPC decide to increase the policy rate now, the cost of funding could rise further, said money market experts.
MPC Continues Deliberations on Day 2
RBI's Monetary Policy Committee (MPC) continued deliberations for the second day today amid expectations that the central bank may wait till August before hiking the key interest rate to contain inflation, being fuelled by high crude oil prices.
The resolution of the second bi-monthly monetary policy meeting in the current financial year, 2018-19, will be made public tomorrow afternoon.
It was in January 2014 that RBI had last raised the short-term lending rate (repo) to 8 per cent; since then it has either reduced it or maintained status quo.
The current repo rate stands at 6 per cent.
"We pencil in 50 bps of rate hike in 2018-19 (earlier pause) possibly split between August and October.
"But we do believe that the MPC votes are likely to be evenly balanced in the June meeting thereby keeping the chances of a rate hike alive in June," said domestic brokerage firm Kotak Institutional Equities.
The 7-quarter high GDP growth rate of 7.7 per cent during the January-March period of 2017-18 and forecast of a normal monsoon have reduced the clamour for a cut in the benchmark lending rate.
Retail inflation, a key data for RBI, has remained above 4 per cent since November 2017. Besides, oil prices have been rising for the past few months. While petrol in Delhi costs Rs 77.83 a litre, diesel is at Rs 68.88 per litre.
Caution, Not Rate Action, Required: SBI
"Notwithstanding the clamour for a rate hike in market, we believe ground realities call for caution and not rate action," said India's largest lender SBI in its research 'Ecowrap'.
Radhika Rao, India Economist with DBS Group, expects hike in the short-term lending rate in June itself.
"We expect the Monetary Policy committee to sound hawkish, with a rising probability that they will vote for a pre-emptive 25 bp rate hike in June, to maintain financial stability and contain second-round inflationary impact from higher oil prices and a weaker rupee," she said.
Indicating hardening of the interest rate scenario, several major lenders including SBI, PNB and ICICI Bank have already raised their lending rates from June 1. Some of the banks have also increased the deposit rates.
What To Watch As The MPC Delivers Its Verdict
Fourteen of 43 economists polled by Bloomberg expect a 25 basis point hike in the repo rate to 6.25 percent. If a status quo is maintained, economists expect that to be accompanied by a change in stance to ‘withdrawal of accommodation’, suggesting a rate hike is imminent.
A Split MPC
Many in the markets expect a split verdict from the MPC.
Minutes of the April policy review had shown that RBI Deputy Governor Viral Acharya is likely to vote for a ‘withdrawal of accommodation’ in the June policy. RBI Executive Director Michael Patra already voted for a rate hike in April and is likely to maintain that stance in June.
Among the other four MPC members, Chetan Ghate, too, expressed concerns about structural inflation pressures. RBI Governor Urjit Patel said he would wait for more incoming data on inflation.
Liquidity Management
Interest rates in the markets have already run up significantly over the last year. Between April and June, the 10-year yield has risen by close to 75 basis points. Corporate funding costs have mirrored this increase.
Market rates have risen in anticipation of higher policy rates but also due to a supply-demand mismatch in the bond markets. PSU banks remain reluctant buyers, leading to muted demand for government and corporate bonds at a time when supply remains high.
The RBI tried to calm the markets by reworking foreign investment rules and doing away with ‘residual maturity’ restrictions. However, it imposed limits on how much a single FPI could hold in one security, leading to some fresh selling.
RBI Hikes Key Lending Rate by 25 Basis Points to 6.25 Percent
The Reserve Bank for the first time in four-and-half-years raised key interest rate on 6 June by 25 basis points to 6.25 percent on inflation concerns arising from surge in international oil prices, PTI reported.
With all the six members voting for a increase in policy rates, the Monetary Policy Committee raised "repo rate by 25 basis points and kept the stance neutral", RBI said in a statement in Mumbai.
RBI Pegs FY19 GDP Growth at 7.4 Percent
RBI retains GDP growth projection at 7.4 percent for 2018-19, PTI reported.
The apex bank revised retail inflation estimate for FY19 from 4.8 to 4.9 percent for the first half and 4.7 for the second half.
Normal Monsoon Augurs Well For Agri Sector: RBI Governor
RBI Governor says forecast of normal monsoon for 2018-19 augurs well for agriculture sector.
'Will Release Norms For Conversion of Urban Cooperative Banks to Small Finance Banks'
RBI Deputy Governor Vishwanathan says the bank will come out with norms for conversion of urban cooperative banks in to small finance banks
RBI Revises Inflation Projection Upwards Based on Firming of Crude Oil Prices
The Reserve Bank marginally revised upwards its inflation projection for the current fiscal on firming crude oil prices in the global market.
Retail inflation, based on Consumer Price Index (CPI), rose sharply to 4.6 percent in April driven mainly by a significant increase in prices excluding food and fuel, RBI said in a statement released after the three-day Monetary Policy Committee meeting.
Since the MPC's meeting in early April, the price of Indian basket of crude surged from USD 66 a barrel to USD 74 -- about 12 percent.
Along with increase in other global commodity prices and recent global financial market developments, this has resulted in a firming up of input cost pressures.
Taking in account various factors, RBI revised the CPI inflation for 2018-19 to 4.8-4.9 percent in first half of the fiscal and 4.7 percent in the latter, including the HRA impact for central government employees, with risks tilted to the upside.
In the last policy, RBI had estimated inflation in the range of 4.7-5.1 percent in H1; and 4.4 percent in H2, including the HRA impact.
The MPC resolution further said that excluding the impact of HRA revisions, CPI inflation is projected at 4.6 percent in H1 and 4.7 percent in H2.
The RBI further said that impact of the revision in the MSP formula for kharif crops is not possible to assess at this stage in the absence of adequate details. Also, if the monsoon is normal and well-distributed temporally and spatially, it may help keep food inflation benign.
Crude oil prices have been volatile recently and this imparts considerable uncertainty to the inflation outlook – both on the upside and the downside, RBI noted.
HDFC: RBI Might Go For More Rate Hikes
The Reserve Bank is likely to go for more rate hikes like the one today on risks from factors like the minimum support prices for farm produce and firm global commodity prices, HDFC Bank said today.
"This is not likely to be end of the hike cycle as domestic price risks such as MSP hikes and firm global commodity prices would warrant further monetary action," the bank said in a post on microblogging site Twitter.
It termed the unanimous rate hike by the six-member monetary policy committee (MPC) as "sensible and cautious" given the events of the last two weeks.
The bank, however, said that the boost in liquidity through changes in liquidity coverage ratio will be offsetting the repo rate hike.
Rate Hike Won't Have Major Impact on Home Sales: Experts
The Reserve Bank's rate hike will not have a major impact on home sales, which has seen a revival in the past few months, say experts.
The apex bank for the first time in over four years raised the repo rate, or the short-term lending rate, by 0.25 percent to 6.25 percent, on inflation concerns arising from surge in oil prices.
Naredco national president Niranjan Hiranandani said the hike is justified on account of inflationary trends, global hardening of interest rates as also petroleum prices moving upwards.
"It will not make a major difference to real estate. However, in the long run, we would prefer rates coming down," he said.
Property consultant JLL India chief executive officer and country head Ramesh Nair said the hike may seem to dampen sentiments in the market, but in terms of real estate, may have little or no impact.
"As almost all home loans these days are on floating rates, the rise and fall in home loan rates does not impact the performance of residential real estate sector much and tends to balance each other out over long term," he reasoned.
Smaller Housing Loans Likely to Be Cheaper
While the rate hike might result in banks raising their home loan rates, the central bank has given the borrowers something to cheer by increasing the priority sector lending (PSL) slabs, which is likely to make low-ticket sized loans cheaper.
Home loans up to Rs 35 lakh in metros (with population of 10 lakh and above) will now qualify for the benefits of priority sector lending, against up to Rs 28 lakh earlier.
Similarly, loans up to Rs 25 lakh will now qualify under PSL for other centres, compared with the up to Rs 20 lakh earlier.
However, the house cannot cost more than Rs 45 lakh in a metro and Rs 30 lakh in other centres.
BSE Sensex, Nifty Closes on High Depite Repo Rate Hike
The BSE Sensex surged almost 276 points to end above the key 35,000-mark today even as the RBI hiked the policy rate by 0.25 percent on inflation concerns. However, the RBI retained the GDP growth forecast for 2018-19 at 7.4 percent on hopes of further boost to investments and higher consumption.
The central bank hiked the benchmark lending rate for the first time in four-and-half-years on inflation concerns arising from a surge in international oil prices. The repo rate now stands at 6.25 percent.
The BSE Sensex, which opened strong at 34,932.49, fell after RBI's policy announcement but soon recovered to touch the day's high of 35,230.54. It finally ended at 35,178.88, up 275.67 points, or 0.79 percent.
The gauge had lost 419.17 points in the previous three sessions. On similar lines, the NSE Nifty, after shuttling between 10,698.35 and 10,587.50, finished the session 91.50 points, or 0.86 percent higher at 10,684.65.
Reserve Bank Changes NPA Norms for MSMEs
The RBI eased NPA classification norms for such units facing input credit linkages and associated issues under the Goods and Services Tax.
"In continuation of support and relief to MSMEs, NPA recognition for GST and non-GST MSMEs is now at 180 days for dues up to 31 December, 2018," Financial Services Secretary Rajiv Kumar said.
Now 180-day NPA norms are applicable for all micro, small and medium enterprises dues between 1 September, 2017 and 31 December, 2018 if the account was standard on 31 August, 2017, he said, adding this dispensation covers both registered as well as unregistered MSMEs.
With regard to GST registered MSMEs, 180-day NPA norms will be brought back to 90 days only in a phased manner, starting 1 January, 2019.
For non-GST registered MSMEs, NPA norms would revert to 90 days from 1 January, 2019.
The Reserve Bank of India (RBI) on Wednesday, 6 June decided to increase key rates concluding its June monetary policy meet. The Reserve Bank's six-member MPC (monetary policy committee), headed by governor Urjit Patel, hiked the repo rate by 25 bps (basis points) or 0.25 percent to 6.25 percent.
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