RBI's Sixth Bi-monthly Monetary Policy Statement 2016-17

To: All Directors of IIHL
Fr: SSR

On the basis of an assessment of the current and evolving macro-economic situation, RBI decided today to keep its key policy interest rate unchanged at 6.25% for the second time in a row.

The initial reaction of the domestic stock market to the policy announcement was negative, as the market was expecting a 25 basis points rate cut from RBI.
RBI sees the inflation number at 4-4.5% during the April-September period. Keeping the policy rate unchanged is in consonance with the objective of achieving consumer price index (CPI) inflation at 5% by Q4 of 2016-17 and the medium term target of 4% within a band of +/-2% while supporting growth.
GDP growth for 2016-17 is projected at 6.9% as against 7.1% indicated in the last policy announcement. Growth is expected to recover sharply in 2017-18 as the consumer demand held back by demonetization is expected to bounce back in the closing month of 2016-17.
The demonetization-induced ease in bank funding condition has led to a sharp improvement in transmission of past policy rate reduction into marginal cost based lending rates (MCLRs) and in turn to lending rates for healthy borrowers.

Since the surplus deposits with banks on account of demonetization have led to reduction in lending rates, it was prudent on the part of RBI not to cut its policy rate. If such a cut has taken place, there would have been outflow of funds from the country, which would have led to steep fall in stock index and weakening of Indian rupee.
With large public investment in infrastructure announced in the Budget for 2017-18 and the government adhering to fiscal discipline, Indian economy will continue to be a bright spot in the global scenario with fastest growth.

The share of IndusInd Bank closed today at Rs. 1319 with week high and low of Rs. 1,339.35 & Rs. 1,270.65