RBI keeps repo rate unchanged at 6.25%, cuts SLR by 50 bps

The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India, headed by Governor Urjit Patel, on June 7 kept the short-term lending rate, called repo rate, unchanged at 6.25 percent after its second bimonthly review of this financial year. 

The MPC, however, cut Statutory liquidity ratio (SLR) by 50 basis points to 20 percent starting June 24. 

This was largely in line with the consensus view, as most analysts believed the central bank was awaiting more clarity on the monsoon outcome, impact of GST rollout and some of the key economic indicators. 

In its February policy review, the central bank had changed its stance to 'neutral' from 'accommodative' in view of the uncertainty over sticky core inflation. The June 5's policy outcome was consistent with that stance. The RBI last cut its policy rate on October 4, 2016.

The central bank on June 7 said that it focused on keeping CPI inflation at 4 percent on a durable basis. It sees inflation in 2-3.5 percent range in the first half of the ongoing financial year and 3.5-4.5 percent in the second half.

Five MPC members voted in favour of status quo, while one was not in favour. The MPC was keen on avoiding any pre-mature action at this stage.

The central bank rationalised risk-weightage and loan-to-value norms for home loans. HTM requirements of banks were kept unchanged.

The benchmark stock indices were rangebound following the announcement. At 2.31 pm, the BSE Sensex was trading flat at 31,200. There was disappointment among some investors, who were expecting RBI to cut rates, given the softer inflation prints, slowing economic growth, good monsoon forecast and the BoP dynamics.

HDFC Securities in its policy preview note had said a change of stance by RBI, before it actually goes out and cut rates, would add to its credibility as an "institution that does not take markets by surprise."

Source- Magicbricks