EMIs to remain high, as RBI keeps lending rates intact

High interest rates on automobile and house loans will continue as the Reserve Bank of India RBI Tuesday decided to keep key interest rates unchanged in its fifth bimonthly policy review of the current fiscalRBI Governor Raghuram Rajan said a change in the monetary policy at the current juncture will be premature and he will wait for the decrease in inflation to continueRBI Governor Raghuram RajanHowever he also mentioned the possibility of a rate cut early next year if the current downturn in inflation momentum continuesHe even predicted an interest rate reduction outside the policy review cycle if the data so permitsThe policy is led by the data we are receiving and we need to be relatively sure that there is a moderation in inflation We have had a couple of months of low inflation after 45 years of high inflation we have to make sure that this is for real especially because we do not want to flip flop Rajan saidRBI had kept a target for bringing down inflation by six percent in 2015 Current data has shown that the countrys annual retail inflation eased to a record low of 552 percent in October The wholesale inflation has also dipped It was down to 177 percent from 238 percentAt the same time factory output measured by the Index of Industrial Production IIP grew by just 25 percent during September pointing towards the persistent weakness in spurring manufacturing activityThe central banks action is along expected lines as most analysts had predicted a status quo considering the macroeconomic situation and current dataIndustry was hoping that given the combination of persistent weak demand and sustained moderation in inflation the Reserve Bank could have found merit in an accommodative stance on interest rate reduction said Sidharth Birla president Federation of Indian Chambers of Commerce and Industry FICCI The Confederation of Indian Industry CII predicted a more accomodative monetary policy early next yearRBI has leaned in favour of anchoring inflationary expectations in its pursuit of finding a solution to the growthinflation conundrum which is as per market expectations commented Ajay S Shriram president CIIThough the RBI took a dovish stand by hinting at a rate cut early next year the Associated Chambers of Commerce and Industry of India Assocham lamented the missed opportunity for RBI at this fifth policy review in the current fiscalRBI has obviously overlooked strong demand from the industry for a cut in the interest rates The industrys demand for lower interest rates was fully justified Assocham president Rana Kapoor saidFor one the concerns over the inflation have largely been addressed with crude oil prices ruling at fiveyear low We cannot ask for more Secondly growth remains muted Certainly if we need to really go in for the Make in Indiarsquo initiative in the right earnest the growth must be given priority he addedThe government said it looks forward to the RBI supporting the revival of growth and employmentThe Government and RBI will work towards a monetary policy framework that will help institutionalize the gains achieved on the inflation front so as to reduce inflationary expectations and further support the revival of investment and growth a finance ministry statement saidThe markets though were highly disappointed The benchmark index of Indian equities markets plunged 116 points or 040 percentThe move by the RBI resulted in heavy selling in auto information technology IT and oil and gas sectors while healthy buying was observed in healthcare metal and capital goodsThe 30scrip Sensitive Index Sensex of the SampP Bombay Stock Exchange BSE which opened at 2852246 points closed at 2844401 points down 11561 points or 040 percent from the previous days close at 2855962 pointsThe wider 50scrip Nifty of the National Stock Exchange NSE also closed trade in red It was down 3120 points or 036 percent at 852470 pointsThe takeaways of the latest policy review RBI maintains key interest rates in Repo reverse repo and CRR No change in SLR or reserve ratio of commercial banks No addition of liquidity in the market Economy to remain sluggish as weak demand may be hamper by high lending rates RBI strongly hints at a possible rate cut in early next year Industry unhappy but reconciles with RBIs dovish stand