RBI signals end to rate cuts as inflation risks rise

Thursday, 9 February 2017 00:00 - - {{hitsCtrl.values.hits}}

Reuters: The Reserve Bank of India (RBI) kept its policy rate on hold on Wednesday, warning about the risks of high inflation and downplaying the economic impact from a radical crackdown on “black money,” a view that differs with more pessimistic private forecasts.

The Central Bank also said it was changing its policy stance to “neutral” from “accommodative”, surprising financial markets and sending bond prices sharply lower on fears that it is signalling its current rate-cutting cycle is over.

The RBI monetary policy committee voted 6-0 to keep the repo rate at 6.25%, marking its third straight unanimous decision since being established in September.

A Reuters poll last week showed 28 of 46 participants had expected the RBI to cut the rate by 25 basis points (bps) to its lowest since November 2010. Analysts had warned it could be a close call but the change in stance jolted investors.

“It’s a big surprise to us. It looks like going ahead, there are no chances of further rate reductions,” said Anjali Verma, an economist with PhillipCapital India, adding that the central bank’s view on inflation was more hawkish than markets expected.

Benchmark 10-year bond yields rose by as much as 26 bps, while share prices ended largely flat on the day and the rupee rose slightly.

“Rate hikes will come onto the agenda much sooner than is generally anticipated,” Capital Economics said in a note after.

RBI to lift all cash withdrawal limits from 13 March

Reuters: Reserve Bank of India (RBI) said it would remove the cash withdrawal limit from automated teller machines (ATMs) and savings accounts from 13 March.

Cash withdrawal limit from savings bank accounts will be relaxed to 50,000 rupees ($ 743.27) a week between 28 February and 13 March, after which it will be removed, RBI Deputy Governor R. Gandhi said after the monetary policy meeting on Wednesday.

The RBI had imposed these limits in November after the government announced a ban on old high-value currency notes, and began to replace them with new notes.