RBI policy goes on expected lines
No change in key rates; GDP forecast trimmed to 5.5 pc
FACED with a declining rupee, the Reserve Bank today chose to keep all key interest rates unchanged, disappointing bankers who said they may have no choice but to hike rates after a month to the detriment of retail borrowers and industry.
Lowering the GDP growth projection for the current fiscal to 5.5 per cent from 5.7 per cent, RBI said the external sector is the "biggest threat" to economic stability and asked the government to take urgent steps to rein in the high current account deficit.
Raghuram Rajan, Chief Economic Advisor in the Finance Ministry, said the Government will announce "specific steps" in the next few weeks to bring down the widening CAD, which has put pressure on the rupee.
The Reserve Bank of India, in its First Quarter Review of Monetary Policy, also said recent liquidity tightening steps taken to support the rupee will be rolled back in a calibrated manner as stability is restored to the foreign exchange market, enabling it to revert to the policy of supporting growth with a continuing vigil on inflation.
Giving thumbs down to the RBI's policy review, the benchmark S&P BSE Sensex slipped by 245 points, or 1.25 per cent, to close at 19,348.34, while the rupee traded at 60.3 against the dollar, down 1.5 per cent.
On the impact of the policy review on interest rates, State Bank of India chairman Pratip Chaudhuri said, "Loan demand is too weak, so there may not be enough demand. So we are waiting...These steps are supposed to be temporary and let us believe in that." Asked how long SBI could hold existing interest rates if the RBI does not reverse its liquidity tightening measures, Chaudhuri said, "2-3 weeks...After that we will have to take a view (on rates).
India Inc too expressed disappointment over the RBI's decision not to cut key policy rates to prop up growth.
Banks may not change interest rates immediately, according to Axis Bank managing director and CEO Shikha Sharma.
"But we really have to watch what happens to rates over the next 6-8 weeks to take a call," she said. Short-term costs have gone up, ICICI Bank CEO Chanda Kochhar said.