EMIs for housing and car loans are likely to remain unchanged after the Reserve Bank on Tuesday maintained the status quo on the key policy rate (repo), as was widely expected, and said there are risks to inflation.
The RBI, in its first bi-monthly monetary policy statement, left the short-term lending rate, or repo rate, unchanged at 8 percent and the cash reserve ratio static at 4 per cent.
It halved the overnight call money rate to 0.25 per cent and increased the 7-day and 14-day repo limits to 0.75 per cent from 0.50 per cent.
“At the current juncture, it is appropriate to hold the policy rate, while allowing the rate increases undertaken during September 2013-January 2014 to work their way through the economy,” said RBI Governor Raghuram Rajan.
For the first time since taking over in September, Rajan did not surprise the markets and kept rates unchanged, as predicted by most analysts.
“Excluding food and fuel…Retail inflation remained sticky around 8 per cent. This suggests that some demand pressures are still at play,” the Governor said.
If inflation continues along the glide path of reaching 8 per cent by January 2015 and 6 per cent by the year after, the Governor promised there won’t be any rate hikes.
According to bankers, interest rates are likely to remain unchanged and there will be no immediate impact on EMIs.
“Interest rates are likely to stay where they are now for some time. Life would be as usual for some time to come,” Punjab National Bank Chairman and Managing Director K R Kamath said.
The RBI pegged 2014-15 GDP growth at a central estimate of 5.5 per cent. It said the FY14 current account deficit would be about 2 per cent of GDP.
To rein in inflation, Rajan raised the repo rate three times since September by 0.25 per cent each for a total of 75 basis points.
In the previous policy review in January, the RBI increased the key rate by 0.25 per cent to 8 per cent.