India's bonds slump; RBI raises CPI forecasts, cuts SLR

India's bonds slump; RBI raises CPI forecasts, cuts SLR

"The base rate/MCLR regime is also not in sync with global practices on pricing of bank loans", RBI said.

And that "factors that have affected growth in the second quarter, some of them will dissipate".

The Monetary Policy Committee's legal mandate is to keep inflation in a 2-6 per cent band, not always keep it close to 4 per cent.

This decision to keep the repo rate unchanged mars the hope of the government and the industry which were rallying for a rate cut in view of the sluggish growth in the economy.

The post India central bank holds rates, cuts growth outlook amid slowdown appeared first on The Independent Uganda:.

Viral Acharya, RBI's Deputy Governor, in a post policy interaction told reporters that the move to link rate to external benchmark is in line with worldwide market and it will give a fair bit of transparency for borrowers. There are fears that inflation might breach the central bank's target of 4% as a result of the impact of normal monsoons on food prices, the new goods and services tax, and rising global crude oil prices. Inflation has partly been driven upwards by the rising cost of imports on account of high exchange rate.

Therefore, for the economy to regain traction, targeted fiscal action has a lot to recommend it given the monetary policy trilemma.

FILE PHOTO: People walk past a barricade inside the Reserve Bank of India (RBI) headquarters in Mumbai, India June 7, 2017.

GDP growth is slowing in consecutive quarters (5.7 percent in the June quarter), private investments are the lowest in several years, unemployment has emerged as a key concern, the banking sector non-performing assets (NPAs) have shot through the roof and export scenario doesn't look very promising - all contributing to a growth drag.

Cautioning the Government against a stimulus package, the RBI contended that breaching the fiscal deficit target will fire up inflation and hurt long-term macroeconomic stability.

The RBI also announced a slew of regulatory policies and said that it will be releasing the final guidelines on peer-to -peer lending later this evening.

In a move that could end opacity in the mechanism that banks use to fix home loan rates and ensure that the changes in policy rates are transmitted to the end borrower, a study group constituted by the Reserve Bank of India has recommended linking floating rate loans to an external benchmark.

The MPC said structural reforms introduced in the recent period will likely be growth augmenting over the medium-to long-term by improving the business environment, enhancing transparency and increasing formalisation of the economy.

"We do not expect a rate cut in the upcoming policy review as consumer price index (CPI) inflation is expected to chart an upward trajectory over the coming months, and print between 4.5 percent and 5 percent in March 2018", ICRA MD Naresh Takkar said in a report earlier this week.

"The long term trend is best explained by the deleveraging underway in the heavily indebted part of the corporate sector and in poor credit growth at public sector banks given they have inadequate capital relative to impending losses on their legacy assets", he said.

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