Economy

Eye on inflation, RBI leaves key rates unchanged

Eye on inflation, RBI leaves key rates unchanged

The Monetary Policy Committee (MPC) maintained its growth forecast for the year 6.7% and nudged upwards its inflation forecasts for Q3 and Q4 FY18 to a range of 4.3% to 4.7% from its October forecast range of 4.2% to 4.6%.

Consequently, the reverse repo rate under the LAF remains at 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25%. "RBI has displayed prudence in highlighting adverse risks to the inflation trajectory", said Chanda Kochhar, MD and CEO, ICICI Bank, noting that the central bank had taken cognizance of improvement in growth prospects on account of various structural reforms implemented by the government, including bank recapitalisation.

Weak global cues also weighed on markets as weak commodity prices, worries over a possible U.S. government shutdown and U.S. President Donald Trump's comments that he plan to transfer his country's embassy to Jerusalem dented risk appetite and fueled demand for safe-haven assets. "But given that interest rates are unlikely to reduce at least in the near to medium term, rate-sensitive stocks slid due to rising oil prices and concern over fiscal slippage", Geojit Financial Services Head of Research Vinod Nair said. The capital infused has helped in raising the market by setting up new projects.

Reserve Bank of India will probably hold interest rates at a seven-year-low on Wednesday as growth recovers, while investors will focus on whether inflation has quickened decisively enough to signal future tightening.

The outlook on the general economic situation, employment scenario, income, and prices remains depressed, according to a survey conducted by the Reserve Bank of India (RBI), released on December 06. RBI's objective of maintaining inflation at levels of around 4 per cent would result in more stable and durable economic growth over the long term. Benign interest rates are solutions to both these issues.

More news: BHP Billiton plc 11.2% Potential Upside Indicated by Barclays Capital

The benchmark 10-year bond yield ended at 7.03 percent, compared with around 7.07 percent right before the RBI decision came in.

The Reserve Bank's two-day monetary policy review kicked off on Tuesday.

The positive end in bond markets comes after a recent sell-off sent the 10-year bond yield up by more than 60 bps since the RBI last cut the repo rate by 25 bps in early August.

Other Asian markets closed lower.


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