Bikky Khosla | 12 Jun, 2018
The Reserve Bank of
India (RBI) last week increased the repo rate by 25 basis points to
6.25 percent. This is the first rate hike since the NDA government
came to power in May 2014. The decision by the six-member monetary
policy committee (MPC) of the central bank came as a big surprise.
The broader market expectation was that rates would be held this time
while the stance may me revised from 'neutral' to 'tighten'.
Instead, RBI went for a rate hike, retaining the 'neutral'
stance.
The unanimous
rate-hike decision by the MPC was clearly in the background of upside
risk to inflation projections. Retail
inflation was pegged at 4.8-4.9 percent for April-September of
2018-19 and 4.7 percent for the second half. Additionally, fresh
indication on the robustness of domestic growth revival seem to be
another major factor behind this decision,
with the central bank now projecting GDP growth in the range of
7.5-7.6 percent in the first half and 7.3-7.4 percent in the second
half, with risks evenly balanced.
Industry
reaction to the decision seems mixed, with some sections viewing that
the decision was based on the ground
realities and positive sentiments in the economy. Reforms like GST,
Bankruptcy Code and RERA have already paved a smooth way for the
economy and now the RBI stance would boost the animal spirits of the
industry. Also, the forecast of
monsoon
is very healthy and if food prices ease, the central bank would be
able to revert to their benign stance on interest rates. However, the
concern of high interest rates is
raised by some sections.
Meanwhile,
in a welcome decision RBI
has eased
loan-repayment norms for the micro, small and medium (MSME) sector.
Under the relaxed norms, eligible MSME accounts, which were standard
as on August 31, 2017, shall continue to be classified as standard by
banks and NBFCs "if the payments due as on September 1, 2017 and
falling due thereafter up to December 31, 2018 were/are paid not
later than 180 days from their original due date. This is a welcome
decision, which will give a big relief to MSMEs that have been
affected due to implementation of the GST.
I
invite your opinions.
