RBI Policy Highlights: Bank deposit rates, home loan interest rate may see rise in tranches

Thanks for staying tuned with Moneycontrol's coverage on the second bi-monthly monetary policy. For more updates log on to Moneycontrol.com

Bank deposit rates, home loan interest rate may see rise in tranches

First rate hike since Modi govt came to power makes the current MPC meet different

In the second bi-monthly policy review of this financial year, the six-member monetary policy committee changed its decision from status quo in the last meeting to a rate hike in the present one.... Read More

Bekxy Kuriakose, Head-Fixed Income, Principal Mutual Fundsaid, "The release of policy has seen a negative impact on gilt prices with yields moving up 5-6 bps on the ten year benchmark gilt. However short term rates have moved down by 15-25 bps. We feel the fact that RBI has maintained the neutral stance implies RBI remains mindful of growth concerns and future policy remains data dependent and would keep all options available with RBI. During the remainder of FY19 there is a chance of further 25-50 bps hike if oil prices continue to rise and US treasury yields also rise to 3.25 percentlevels and above. The progress of monsoons, MSP hikes, fiscal policy target maintenance would also be key."

Radhika Rao, India Economist, DBS Bank said that the minutes of the June meeting will be watched next to gauge the committee members’ views, backing their unanimous vote for a 25 bps hike.

She said, "The move to maintain a neutral move, while hiking the rates, allows the central bank to be non-committal about the future course of action. We recall, the central bank had lowered rates in 2017, maintaining a neutral stance, thus leaving the room to move in either direction depending on the evolving risks to the price outlook.While this year’s rate-hiking cycle will be shallow, it is unlikely to be ‘one and done deal’.The authorities’ will be watchful of the inflationary impact of hardening inflationary expectations, consumption-focused policies e.g. including the minimum support prices, and fiscal slippage risks from any shortfall in privatisation receipts, downside in GST collections and need for fuel excise duty cuts;return in market volatility.Keeping these in view, we maintain our expectations of another rate hike in the August/ September meeting."

Kuntal Sur, Partner & Leader-Financial Risk and Regulation, PwC India said, "The RBI hiked key policy rates by 25 bps for the first time in more than four years indicating an end of easing cycle for the time being.The MPC has hiked rates keeping in mind the external factors weighing on the economy. Crude pricessince the last monetary policy review have moved to $80 per barrel, from the RBI’s expectation of $65 per barrel. The rate hike is also important to stabilize a weak rupee. The policy statement further notes a pick-up in domestic investment in the last quarter, and the central bank expects it to continue. It is, hence, the right time to increase rates."

The MPC has revised upwards the estimates of agriculture and allied activities on the supply side supported by an all-time high production of food grains and horticulture during the year.

"RBI policy response of raising rates by 25 bps is dictated by robust consumption and improving capacity utilization. Cost push inflation is a clear risk going forward," said State Bank of India (SBI) Chairman Rajnish Kumar.

Rana Kapoor, MD & CEO, YES Bank said, "RBI’s unanimously delivered 25 bps hike has been balanced with a neutral stance, reinforcing MPC’s alacrity to retain inflation within its 4 percent target amidst hitherto buildup in price pressures led by crude prices. The rate action comes at a time when economic recovery now appears to be on a firmer footing.This stance allows RBI the choice to act in accordance with evolving macro and financial conditions, in both global and domestic economy in the coming months. Amidst many moving parts, this will entail a careful balancing of global headwinds from elevated crude prices, geopolitical tensions, and domestic policies of MSPs, state pay commissions on growth-inflation dynamics.”

RBI announces 25 bps hike in repo rate; 10 key takeaways from RBI policy

The Reserve Bank of India (RBI) has decided to finally fall in line with what the bond markets were suggesting by increasing its repo rate to align with market rates after a prolonged pause.... Read More

Markets@Moneycontrol: D-Street surges on the back of RBI policy meet outcome

Benchmark indices had a strong trading session on Wednesday, driven by positive cues from MPC's policy meet outcome. The Sensex ended 275 points higher while the Nifty was up almost 100 points.... Read More

Urban cooperative banks now have a chance to become small finance banks

Based on recommendation made by the High Powered Committee in August 2015, the central bank has decided to allow voluntary transition of Urban Cooperative Banks (UCBs) into Small Finance Banks (SFBs).... Read More

Suvodeep Rakshit, vice president & Sr. Economist, Kotak institutional equitiessaid, "“RBI MPC hiked repo rate by 25 bps to 6.25 percent while keeping the stance unchanged at 'neutral'. We remain confident that this will be a shallow rate hike cycle if the present conditions do not deteriorate significantly. We expect the RBI to hike by another 25 bps in the August policy but the call will hinge on how crude and INR movements pan out over the next few months, as well as, the extent of MSP hikes. We need to carefully look at the RBI minutes and observe the extent of upward pressure on food prices in the near term, risks of fiscal slippages, domestic growth recovery, and evolving global macro conditions to have greater clarity on the extent of RBI’s rate hike cycle.”