Reserve Bank Of India keeps rates unchanged, Sensex down over 200 points

New Delhi, Dec 07: The RBI has left the Repo rate unchanged at 6.25 percent, reverse Repo Rate U/LAF at 5.75%.

Other announcements made by the RBI:
* Withdrawal of incremental cash reserve ratio imposed recently on Rs 3.24 lakh crore of deposits, from the fortnight starting December 10.
* Retail inflation to be 5 per cent in fourth quarter of current fiscal
* Expected growth — measured by GVA — to come in at 7.1 percent in FY17, down from its earlier 7.6 percent forecast.
* Demonetisation can bring down Consumer Price Index
The RBI policy statement further says:
“The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index inflation at 5 per cent by Q4 of 2016-17 and the medium-term target of 4 per cent within a band of +/- 2 per cent, while supporting growth.”
“The outlook for GVA growth for 2016-17 has turned uncertain after the unexpected loss of momentum by 50 basis points in Q2 and the effects of the withdrawal of specified bank notes, which are still playing out.”
“Downside risks in the near term could travel through two major channels: (a) short-run disruptions in economic activity in cash-intensive sectors such as retail trade, hotels & restaurants and transportation, and in the unorganised sector; (b) aggregate demand compression associated with adverse wealth effects. The impact of the first channel should, however, ebb with the progressive increase in the circulation of new currency notes and greater usage of non-cash based payment instruments in the economy, while the impact of the second channel is likely to be limited.”
RBI chief Urjit Patel says:
* 7th Pay Commission disbursements have not been disruptive to inflation outcomes.
* Incremental cash reserve ratio was purely a temporary measure.
* Inflation outcome in September and October vindicates current stance
* The recent rise in crude oil prices presents an upside risk to its 5 percent inflation target for March 2017
* Demonetisation to result in short-run disruptions in cash-intensive sectors like retail, hotels, restaurants and transportation.
* Govt has pro-actively responded with increasing market stabilisation scheme limit to Rs 6 Lakh crore.
Deputy RBI chief R Gandhi says:
* Demonetisation decision was not taken in haste
* “We are trying to provide adequate cash. We advise people to not panic of hoard cash. They should also consider adopting more digital payments as there are many available options.”
* 19 billion notes have been given to public, more than what we have supplied to public in the last 3 years.
* Printed more currency notes post demonetisation than in the last 3 years; Public need not worry about availability