RBI retains repo rate at 6.25%

Reverse repo rate hiked by 25 bps

RBI retains repo rate at 6.25%

The wait for home loan borrowers for lower interest rates just got longer with the Reserve Bank of India deciding to keep the lending rate unchanged at 6.25%.

The central bank, however, decided to hike its reverse repo rate by 25 basis points to 6%. The reverse repo rate is the rate at which the RBI borrows from commercial banks. Following the decision to hike reverse repo rate, the bank and the marginal standing facility now stand at 6.5%.

“The monetary policy committee (MPC) decided to keep the policy rate unchanged in this review while persevering with a neutral stance. The future course of monetary policy will largely depend on incoming data on how macroeconomic conditions are evolving,” RBI said.

“The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of (+/-)2%, while supporting growth,” the central bank added.

Bankers believe that the decision by RBI to keep repo rate unchanged was very much along expected lines and also believe that the RBI’s focus on liquidity management will ensure stability in markets.

“The RBI policy to keep the repo rate on hold was on expected lines. Elsewhere, on the developmental and regulatory policies front, RBI has announced a number of measures notably, substitution of collateral under LAF, allowing banks to invest in REITS and financial literacy; all these will go a long way in improving the financial system,” SBI Chairman Arundhati Bhattacharya said in a statement.

“RBI’s clear articulation on liquidity management is welcome and would ensure stability in markets by enforcing the sanctity of the operating rate while addressing temporary liquidity imbalances,” ICICI Bank Managing Director and Chief Executive Officer Chanda Kochhar said in a statement.

Banks allowed to participate in REITS and InvITs

In a major boost to the real estate sector, the RBI has allowed banks to participate in Real Estate Investment Trust (REITS) and Infrastructure Investment Trust (InvITs). The Sebi had put in place regulations for REITS and InvITs and requested by the Reserve Bank of India to allow banks to participate in these schemes.

 Currently, banks are allowed to invest in equity-linked mutual funds, venture capital funds (VCFs) and equities to the extent of 20% of their net owned funds (NOF). “It is proposed to allow banks to invest in REITS and InvITs within this umbrella limit. Detailed guidelines will be issued by May-end 2017,” the RBI said.

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