Sixth RBI bi-monthly review: Wait and watch time for interest rates

CHENNAI, India - Feb. 3, 2016 - PRLog -- The RBI left key rates unchanged in the sixth bi-monthly policy review of 2015-16. The repo rate unchanged at 6.75% and the cash reserve ratio (CRR) remains unchanged at 4%. With the budget is just round the corner, this was on entirely expected lines. For the short term, we can expect the interest rates for loans and deposits to remain unchanged.

In 2015, repo rates dropped by 125 basis points from 8.00 in January 2015 to 6.75 by December 2015. The RBI continued with its accommodative stance, saying with inflation moving closer to the target there would be more room for rate cut to support growth. The RBI policy statement spoke of structural reforms in the forthcoming Union Budget 2016 to boost growth while controlling spending to create more space for monetary policy, parking the ball firmly in the government’s court. This leads us to hope for significant reforms in the Union Budget.

The Union Budget and the first bi-monthly of 2016-17 in April will bring clarity to a lot more things. Generally, the expectation is that we could see a further cut of 25 basis points in the repo rate in the next bi-monthly review post adjustment for the budget provisions including the implementation of the 7^th pay commission.

The RBI expects the growth to strengthen gradually in 2016-17. The RBI Governor Raghuram Rajan stated that the Government is taking measures to restart stalled projects. This news is expected to infuse a new spirit especially in the construction and infrastructure sector.  The Reserve Bank also announced that it will take steps to ease doing business and contribute to an ecosystem that is conducive for growth of start-ups. This is another very welcome news.

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