Repo rate remains unchanged, RBI maintains status quo

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The Reserve Bank of India (RBI) on Wednesday maintained the status quo by not making any changes in the current repo rate of 6 percent in its December policy review. RBI has also kept the reverse repo rate unchanged at 6.25 percent.

repo_rateRepo rate signifies the rate at which RBI lends short-term money to the banks. Reverse repo, on the other hand, is the rate at which RBI borrows money from the commercial lenders.

“RBI decision to keep the key interest rates unchanged has been in line with expectation. Softening of retail inflation and global crude oil prices, a dovish statement issued by the US Fed and easing of geopolitical concerns coupled with deceleration of GDP growth in Q2FY19 have been the reason behind RBI’ss decision. Calibrated reduction of SLR announced in the policy today is in line with the long-term strategy of the RBI to scale down pre-emption of bank resources by the government without undermining the quality of bank balance sheet,” Sujan Hajra, Chief Economist, Anand Rathi Financial Services Ltd.

“This step, however, may harden yields in the government securities market as the process would allow banks to reduce government security holding cumulatively to the tune of Rs 2 trillion. Barring large unexpected developments, we expect the RBI to remain in the pause mode for the reminder of FY19?” he added.

After continuous changes in the repo rate since June, the bank regulator decided to keep the rates unchanged in October, surprising the markets that were expecting a hike in repo rate in the wake on the falling rupee value and to combat the rising menace of high oil prices. The RBI had, however, changed its stance from ‘neutral’ to ‘calibrated tightening‘, revising its retail inflation projection on the upside.

“The real estate sector has started to slowly improve and no change in repo rate is a welcome move as the positive momentum we have witnessed in the last few months will continue unabated now. We expect customer demand to increase in the mid-income and affordable housing segment, especially projects by fundamentally sound developers whose projects are nearing completion,” said Samir Jasuja, Managing Director and Founder at PropEquity, a real estate data, analytics research firm.

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