Monetary Policy: Benchmark equity indices declined on Thursday after banking counters pulled down the RBI’s monetary policy following an unexpected announcement to reduce cash in the financial system.
Investors remained on edge even ahead of the announcement of US inflation data.
The Reserve Bank of India (RBI) on Thursday kept its key interest rates unchanged for the third consecutive meeting but hinted at a tighter policy if food prices push up inflation.
Monetary Policy: RBI’s MPC keeps policy rate unchanged, revises CPI inflation forecast to 5.4% for FY24
Consequently, the Standing Deposit Facility (SDF) rate remains at 6.25% and the Marginal Standing Facility (MSF) rate and the Bank Rate at 6.75%.
The Monetary Policy Committee (MPC) of the Reserve Bank of India on August 10 unanimously decided to keep the policy repo rate unchanged at 6.50%.
While the RBI’s decision to leave the key lending rate unchanged was on positive and expected lines, the fact that the central bank has maintained a hawkish stance to tackle inflation is worrying investors.
Deven Mehta, research analyst at Choice Broking, said, “Barring a higher-than-expected revision in consumer price inflation forecast, the Reserve Bank of India’s policy announcement on August 10 was devoid of surprises. Keeping key interest rates unchanged, the central bank raised its inflation forecast for the fiscal to 5.4 per cent from 5.1 per cent. After the policy and the Governor’s speech, markets fell and closed lower.
Another factor impacting market sentiments is the RBI’s decision to impose an incremental cash reserve ratio (CRR) of 10 per cent of net demand and time liabilities (NDTL).
Vikas Garg, head of fixed income, Invesco Mutual Fund, said, “The incremental CRR requirement is a slight negative, though only for a short period.