RBI Policy As-It-Happened: Bankers, economists see limited room for rate cuts this fiscal; inflation to be closely monitored

Explaining the regulatory action, the RBI said The Karad Janata Sahakari Bank does not have adequate capital and earning prospects.

4:04 pm: That is all from us from the live coverage of the first bi-monthly monetary policy of this financial year. Thank you for staying tuned.

4:00 pm: The monetary policy announcement and change in stance. Find the full report on all the action by the MPC here.

3:59 pm: Shares of real estate companies witnessed a surge as investors cheered the central bank’s decision on REITs.

3:58 pm:  RBI is initiating a pilot project on financial literacy at the block level to explore innovative and participatory approaches to financial literacy. The pilot project will be commissioned in nine states across 80 blocks by Non-Government Organisations (NGOs) in collaboration with the sponsor banks.

3:57 pm: With respect to rationalisation of Merchant Discount Rate (MDR) for debit card transactions, RBI said that until final guidelines are announced, the extant instructions will continue to apply.

3:54 pm: RBI said that draft guidelines on simplified hedging facility for forex exposure will be brought out by mid-April, 2017.

3:53 pm: Bekxy Kuriakose, Head - Fixed Income, Principal Mutual Fund says concerns on state government fiscal deficit is now becoming paramount especially in the wake of recent farm loan waivers.

3:50 pm: KVS Manian, president, institutional and investment banking at Kotak Mahindra Bank said that it looks like a prolonged pause from MPC with respect to rates. Risks for rates to go higher is higher, he adds.

3:48 pm: RBI said that in view of the enhanced role of ARCs and greater cash based transactions, it is proposed to stipulate a minimum net owned funds of Rs 100 crore for asset reconstruction companies. The necessary instructions will be issued by end-April, 2017.

3:46 pm: Shubhada Rao of YES Bank says that we need to look at how soon the demand revival happens.

3:44 pm: Rajnish Kumar, MD, SBI says that a sense of urgency required in non-performing assets resolution.

3:40 pm: In its Statement on Developmental and Regulatory Policies, RBI said that it has proposed since November 2015 the introduction of a Standing Deposit Facility (SDF) by suitably amending the RBI Act, which is under examination of the Government.

3:38 pm:  The National Electronic Funds Transfer (NEFT) settlement cycle will be reduced from hourly batches to half hourly batches. Consequently, 11 additional settlement batches will be introduced at 8.30 am onwards, taking the total number of half hourly settlement batches during the day to 23.

3:37 pm: RBI will issue the final guidelines for Pre-paid Payment Instruments in India by end-May 2017.

3:35 pm: As recommended by the Working Group on Development of Corporate Bond Market in India, RBI will bring out a draft policy framework for introduction of tri-party repo by mid-April, 2017.

3:34 pm: Sajjid Chinoy of JPMorgan says it is premature to expect a rate hike.

3:32 pm: For banking system, the real issues are finding capital for growth and NPA resolution, says SBI managing director Rajnish Kumar.

3:29 pm: RBI will issue final guidelines on banking outlets, clarifying on what is a ‘banking outlet’ and harmonising the treatment of different forms of bank presence for the purpose of opening outlets in underserved areas. Detailed guidelines will be issued by end-April, 2017.

3:27 pm: RBI has proposed to allow banks to invest in REITS and Infrastructure Investment Trusts.  Detailed guidelines will be issued by end-May 2017. Currently, banks are allowed to invest in equity-linked mutual funds, venture capital funds (VCFs) and equities to the extent of 20 percent of their NOF.

3:26 pm: Tiwari of Union Bank says allowing banks to invest in REITS is a welcome move.

3:23 pm: Sajjid Chinoy of JPMorgan says given the macro-economic context, there is a worry to upside risks to inflation in second half of fiscal.

3:22 pm: Arun Tiwari, CMD, Union Bank says he agrees with Patel that JLF needs to more effective in execution.

3:21 pm: Bankers, economists see very little possibility for rate cuts in this financial year.

3:19 pm: Ananth Narayan of Standard Chartered Bank says reality is projection for CPI does not look good and there is uncertainty on monsoons. Not good news for medium term for bond market, he adds.

3:18 pm: The policy statement said that services sector also slowed, pulled down by trade, hotels, transport and communication as well as financial, real estate and professional services.

3:17 pm: In the industrial sector, there was a significant loss of momentum across all categories, barring electricity generation, says MPC.

3:16 pm: MPC says activity in the services sector appears to be improving as the constraining effects of demonetisation wear off. On the one hand, rural demand remains depressed as reflected in lower sales of two- and threewheelers and fertiliser.

3:15 pm: The committee says currency's impact on the liquidity overhang was, however, partly offset by a significant decline in cash balances of the Government up to mid-March which released liquidity into the system.

3:14 pm: MPC says that currency in circulation expanded steadily during this period.

3:13 pm: We are aware of the risks on inflation and we feel that at this juncture shift from accommodative to neutral is appropriate, says Patel.

3:11 pm: There are no reasons for us to be concerned about spreads coming down, says Patel. It broadly reflects market forces, he adds.

3:09 pm: N S Vishwanathan, deputy governor, RBI says it is not fair for shareholders to complain against administrators in cooperative banks.

3:07 pm: Emerging markets including us are in much better shape and are macro-economically more stable, says RBI's Acharya.

3:05 pm: Patel says that we need to create a consenus so that loan waiver promises are eschewed. Uttar Pradesh chief minister Yogi Adityanath had announced a Rs 36,359 crore loan waiver for one lakh small and marginal farmers in the state.

3:03 pm: Urjit Patel says farm loan waiver undermines a honest credit culture and discipline. He says that it can also lead to crowding out of private borrowers.

2:59 pm: While there is surplus liquidity in the system, it is getting drained out, says RBI's Acharya.

2:58 pm: We expect to put a revised prompt corrective action framework by mid-April, says Mundra.

2:57 pm: Capital adequacy of public sector banks was meeting the regulatory requirements in Q3, says Mundra. He adds that there will be more demands for capital by banks capital that is needed to support growth.

2:56 pm: RBI deputy governor S S Mundra says the various indicators of stress further deteriorated.

2:55 pm: RBI deputy governor Viral Acharya says that they will deal with overnight liquidity needs with appropriate instruments.

2:54 pm: Endeavour is to drain liquidity overhang, says Patel.

2:53 pm: Liquidity surged in the system post demonetisation.

2:52 pm: Expect government spending to increase in first half of this fiscal, says Patel.

2:51 pm: RBI governor says that the aim is to finely align money market rates with policy rates.

2:50 pm: We will manage the new drivers of liquidity in this fiscal, says Patel.

2:49 pm: Patel says liquidity absorption was Rs 1 trillion at its peak.

2:48 pm: We have provided clarity on how we see liquidity conditions evolve, says Patel.

2:47 pm: Patel says there is further scope for transmission of rates.

2:45 pm: RBI governor Urjit Patel says MPC decided unanimously to keep rates unchanged.

2:45 pm: GVA growth is projected to strengthen to 7.4 percent in 2017-18 from 6.7 percent in 2016-17, with risks evenly balanced.

2:44 pm: According to the MPC, banks have reduced lending rates, although further scope for a more complete transmission of policy impulses remains, including for small savings/administered rates.

2:43 pm: MPC says it will be the Reserve Bank’s endeavour to put the resolution of banks’ stressed assets on a firm footing and create congenial conditions for bank credit to revive and flow to productive sectors of the economy.

2:41 pm: Much of the impact of the fall of US $4.5 per barrel in international prices of crude since early February would feed into the CPI print in April as its cumulative pass-through occurred with a lag in the first week of this month, says MPC.

2:41 pm: MPC says that volatility in crude oil prices and its lagged pass-through are impacting the trajectory of CPI inflation excluding food and fuel.

2:40 pm: Bond markets cheer as no action on the Cash Reserve Ratio.

2:39 pm: Marginal standing facility (MSF) rate and the Bank Rate reduced to 6.50 percent from 6.75 percent. No significant impact on bond markets.

2:38 pm:  MPC says inflation developments have to be closely and continuously monitored, with food price pressures kept in check so that inflation expectations can be re-anchored.

2:37 pm:  The MPC said it remains committed to bringing headline inflation closer to 4 percent on a durable basis and in a calibrated manner.

2:36 pm: The future course of monetary policy will largely depend on incoming data on how macroeconomic conditions are evolving, said the MPC.

2:35 pm: For 2017-18, inflation is projected to average 4.5 percent in the first half of the year and 5 percent in the second half.

2:35 pm: Reverse repo hiked from 5.75 percent to 6 percent. Bankers said this could confuse markets in the short run.

2:34 pm: 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 percent within a band of +/- 2 percent, while supporting growth.

2:31 pm: MPC says banks can invest in Real Estate Investment Trusts.

2:31 pm: All six members voted in favour of monetary policy.

2:30 pm: MPC keeps repo rates unchanged. Repo rate remains unchanged at 6.25 percent. Reverse repo hiked to 6 percent.

2:29 pm: BSE Sensex down by 0.39 percent to 29,856.79 as one minute more for MPC to announce the policy descion

2:26 pm: Arun Tiwari, chairman and managing director, Union Bank of India said that there will no rate action today.

2:24 pm: Dinesh Khara, managing director, SBI said that concerns on excess liquidity remain, but it could deployed to push the growth piece.

2:23 pm: YES Bank does not expect either a rate cut or a rate hike.

2:22 pm: In the previous policy, six members voted in favour of the monetary policy decision.

2:20 pm: Shubhada Rao, chief economist of YES Bank said that cash reserve ratio is not a good idea since it is a blunt tool unless it is tweaked on a remunerative basis.

2:18 pm: Sajjid Chinoy, Chief Asia Economist, JPMorgan said that the question is will RBI at some point take measures to drain some excess liquidity.

2:15 pm: Ananth Narayan, head-financial markets, Standard Chartered Bank said that global markets continue to remain unpredictable.

2:14 pm: HSBC in a note said that RBI could use the policy day to outline a mix of measures to absorb excess liquidity. It said that these measures may include details on the introduction of a standing deposit facility which will give the RBI an 'unlimited capability' to remove excess liquidity.

2:13 pm: Amandeep Chopra, Group President and Head of Fixed Income at UTI MF told CNBC-TV18 that they are not expecting any action on the rates from RBI, but there is a very strong case for RBI to at least address excess liquidity in the system.

2:11 pm: Economists expect that there could be only be a 25 basis point cut in repo rates in this financial year.

2:09 pm: A Bloomberg survey of 52 economists said that the repo rate will be kept unchanged at 6.25 percent today.

2:07 pm: Soumya Kanti Ghosh, Chief Economic Adviser, Economic Research Department, SBI has said that in the post demonetisation period, aggregate deposits have increased by Rs 4.27 lakh crore. Interestingly, even after withdrawals limit have been removed, the average withdrawal has declined significantly in March from January levels.

2:06 pm: State Bank of India has also maintained that there will be a status quo on repo rate in the policy.

2:03 pm: The MPC in the last policy on February 8 had said that global growth is projected to pick up modestly in 2017, after slowing down in the year gone by.

2:00 pm: Any liquidity removal measures could be seen as a negative.

1:59 pm: Bankers also expect the MPC to hold rates. Kotak Mahindra Bank Vice Chairman Uday Kotak told PTI that RBI is expected to hold rates.

1:57 pm: Wholesale inflation soared to a 39-month high of 6.55 percent in February while retail inflation inched up to 3.65 percent due to rise in food and fuel prices, leading to speculation that RBI will keep interest rate unchanged again today.

1:55 pm: Banks including State Bank of India, HDFC Bank and Indian Overseas Bank reduced their base rates a few days ahead of the monetary policy decision.

1:54 pm: The Indian currency has also been strengthening against the dollar and has gained 4.5 percent in the January to March quarter.

1:51 pm: RBI is also likely to come out with steps to strengthen the joint lenders’ forum and oversight committee mechanisms in order to resolve the total stressed assets of around Rs 14 lakh crore.

1:49 pm: RBI will address the much talked about solutions to the big bad loan problem. Bad loans or non-performing assets (NPAs) rose by over Rs 1 lakh crore in the first nine months of last fiscal to Rs 6.07 lakh crore in December 31, 2016

1:48 pm: The overvaluation of the rupee amid growing exports will call for a decision on managing weak dollar inflows and bring in rupee stability.

1:45 pm: The government nominees on MPC are Chetan Ghate, professor at the Indian Statistical Institute; Pami Dua, Director, Delhi School of Economics and Ravindra H Dholakia, professor at IIM-Ahmedabad, while RBI nominees are the Governor, Deputy Governor in-charge of monetary policy Viral A Acharya and Executive Director.

1:42 pm: In Patel's first policy review as RBI Governor in October, which was also the maiden review of the MPC, the repo rate was reduced by 0.25 per cent to 6.25 per cent.

1:41 pm: In the last policy, RBI governor Urjit Patel had said he would wait for more clarity on the inflation trend and impact of demonetisation on growth before making change in the key policy rate.

1:40 pm: In the last policy review on February 8, RBI had kept key interest rate on hold at 6.25 percent.

1:31 pm: The monetary policy committee (MPC) began its two-day meeting on Wednesday to decide on the first bi-monthly monetary policy for 2017-18.

1:30 pm: Surplus liquidity, rupee stability and tackling bad loans will be the focus for the MPC.

1:29 pm: Welcome to the live blog on the first bi-monthly monetary policy of 2017-18 by the monetary policy committee (MPC) of the Reserve Bank of India (RBI). The policy will be announced at 2:30pm.