Amidst uncertainty that is prevailing due to a host of factors such as the proposed rate hike in the U.S., increase in crude oil prices and more importantly due to the unfathomable effects in the near term related to demonetisation, RBI and the Monetary Policy Committee (MPC) retained the rates unchanged compared to the changes that it had effected in its last bi-monthly policy. The Repo (the rates at which the central bank lends money on short-term basis to banks) was unchanged at 6.25%. The CRR (portion of deposits that banks have to maintain with RBI in cash) too remained at 4%.
This move by MPC to retain the rates was unexpected that has stunned the experts since the market was sure of a cut. But the committee voted in favour of retaining the key rates unchanged for the time being.
Due to demonetisation the economic growth in the next two quarters may be muted and also the impending Fed Rate hike in the United States later this month may shrink the liquidity into emerging markets including India that may affect certain growth projections and hinder money supply, leading to economic pressures.
The effects of demonetisation has suddenly made banks to have more liquidity that is expected to ease the pressure on lending since banks were grappling with shortage of funds due to low deposit rates. Most banks have already started to reduce deposit rates as also the lending rates.
Wait and watch attitude
The home loan interest rates have been ruling between 9.10% and 9.30% at leading banks. But no new reduction in rates can be expected in the near future. The banks would prefer to wait and watch before announcing any rate cuts on lending.
The lending and borrowing activity is expected to pick up once the December 30 deadline of demonetisation ends.
With the RBI hoping that that it would be able to maintain inflation at 5% by March 2017, it is hopeful of cutting rates in its next policy that would pave way for a lower interest rate regime. But that would happen only after the early Budget that is happening this financial year on February 1 instead of the usual February 28.
The signals are hazy and unclear at this juncture whether the ambience would be comfortable by March next year.
Nevertheless, the interest rates may not go up and the rates may remain at the current levels for a while unless another surprise is in store.
