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Reserve Bank Surprises, Keeps Repo Rate Unchanged At 6.25%

NDTV Profit logo NDTV Profit 08-02-2017

Contrary to expectations, the Reserve Bank of India today surprised by keeping its repo rate or key lending rate steady at 6.25 per cent. 34 out of 39 economists in a Bloomberg survey had expected the central bank to cut the repo rate by 25 basis points.

Falling inflation, stable rupee and the government's fiscal prudence in Budget gave the central bank some room to go for the rate cut, say analysts.

Complete coverage on Union Budget 2017

In Budget 2017, which was presented last week, Finance Minister Arun Jaitley kept the fiscal deficit target for the year starting in April at 3.2 per cent of gross domestic product, below the 3.3-3.5 per cent expected by analysts.

Consumer inflation also fell to a two-year low of 3.41 per cent in December, which is below the RBI's end-March 2017 target of 5 per cent and medium-term target of 4 per cent. 

With notes ban expected to drag the economic growth to a four-year low for the year ending March 31, 2017, the RBI has been under pressure to lower borrowing costs to give a fillip to the economy. 

Economic Survey sees India's GDP growing between 6.5 per cent and 6.75 per cent in the current fiscal year - which will be the lowest in four years. Many banks have already substantially slashed their lending rates this year after a surge in deposits after demonetisation.

But analysts see little room for the RBI to cut rates further in the near future. The RBI has already cut the repo rate by 175 basis points, since embarking on its easing cycle from early 2015.

Expectations of rate hikes by the US Federal Reserve this year and Donald Trump's election win have sent funds away from emerging markets.

The volatility in global currency market, US policies and Fed rate hikes will keep the RBI cautious, they say.

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