Why The RBI Will Not Hike The Repo Rates This Time


repo rates by 25 bps to 6.25%. The decision was unanimously backed by the 6-member monetary policy committee, as crude oil price surged to its 52-week high of $72.83 a barrel. 

However, crude oil prices have currently dropped to $69.05 a barrel and diesel prices have been slashed across four metro cities on Friday. A liter of diesel was being sold in New Delhi for Rs.67.72, in Kolkata for Rs. 70.43, in Mumbai for Rs. 71.89, and in Chennai for Rs. 71.52. The drop in energy prices will leave enough room for the RBI go soft on its rate hike cycle.

Inflation Under Control
Currently, India’s inflation rate is standing at 5% which is in line with RBI’s medium-term target of 4% with a buffer band of +/- 2% while supporting growth.

GST Rate Cut
Recently the Nifty soared above 11200 on Friday, backed by the GST council’s decision to slash rates on more than 50 FMCG items. The reduction of rates is in line with the Government’s efforts to soften tax rates and boost consumer confidence ahead of the festive season.

CRR Rate Is Likely To Be Hiked

Protection Against FED Rate Hike & NPA
The RBI is due to roll out its bi-monthly monetary policy decision on Wednesday. The central bank is likely to hike its CRR rates by 25bps which are currently standing at 4%.CRR or the cash reserve ratio ensures that banks have adequate cash liquidity to meet the payment demands of their depositors. In a recent report released by the Recovery of Bad Debts and Debt Recovery Tribunals, the PSU NPA figures have touched Rs 8.99 lakh crore which is almost 10% of the total advances at the end of December 2017.  A 25 bps rise in the CRR rates will provide an additional layer of protection for the NPA laden PSU banks against any market volatility caused by the Federal Reserve’s decision to hike the Federal Funds rate which is currently standing at 2%.

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Three Reasons Why The Repo Rate Is Likely To Remain Unchanged

Falling Energy Prices
During its last bi-monthly monetary policy, the RBI hiked the repo rates by 25 bps to 6.25%. The decision was unanimously backed by the 6-member monetary policy committee, as crude oil price surged to its 52-week high of $72.83 a barrel. 

However, crude oil prices have currently dropped to $69.05 a barrel and diesel prices have been slashed across four metro cities on Friday. A liter of diesel was being sold in New Delhi for Rs.67.72, in Kolkata for Rs. 70.43, in Mumbai for Rs. 71.89, and in Chennai for Rs. 71.52. The drop in energy prices will leave enough room for the RBI go soft on its rate hike cycle.

Inflation Under Control
Currently, India’s inflation rate is standing at 5% which is in line with RBI’s medium-term target of 4% with a buffer band of +/- 2% while supporting growth.

GST Rate Cut
Recently the Nifty soared above 11200 on Friday, backed by the GST council’s decision to slash rates on more than 50 FMCG items. The reduction of rates is in line with the Government’s efforts to soften tax rates and boost consumer confidence ahead of the festive season.

CRR Rate Is Likely To Be Hiked

Protection Against FED Rate Hike & NPA
The RBI is due to roll out its bi-monthly monetary policy decision on Wednesday. The central bank is likely to hike its CRR rates by 25bps which are currently standing at 4%.CRR or the cash reserve ratio ensures that banks have adequate cash liquidity to meet the payment demands of their depositors. In a recent report released by the Recovery of Bad Debts and Debt Recovery Tribunals, the PSU NPA figures have touched Rs 8.99 lakh crore which is almost 10% of the total advances at the end of December 2017.  A 25 bps rise in the CRR rates will provide an additional layer of protection for the NPA laden PSU banks against any market volatility caused by the Federal Reserve’s decision to hike the Federal Funds rate which is currently standing at 2%.

 
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