The central bank said its monetary policy stance continues to be neutral from being accommodative meaning the policy action could either be either hawkish or dovish depending on the developments
Don't expect your equated monthly instalments (EMIs) to fall much. The Reserve Bank of India (RBI) has indicated a slight upward risk in its inflation projections and hinted at holding rates for a longer time.
It expects inflation to climb to 4.5% in the first half of 2017-18 and to 5% in the second half, and cited risks to inflation from likelihood of El Nino, implementation of Seventh Pay Commission, Goods and Services Tax (GST) and rising inflationary expectations, amid the softening of crude prices.
In the first policy statement of fiscal 2018 unveiled on Thursday, the central bank said its monetary policy stance continues to be neutral from being accommodative meaning the policy action could either be either hawkish or dovish depending on the developments.
Rajnish Kumar, managing director, State Bank of India, "Retail borrowers cannot expect any further fall in their EMIs with inflation expectation slightly higher, and the expectation of a RBI rate cut on hold for the next six months. As far as the home loans rates are concerned, they have hit the rock bottom and there is now little room to cut deposit rates. So, only if there is a sharp cut in the small savings rate, deposit rates can fall and subsequently the lending rates. But this is unlikely to happen."
Devendra Pant, chief economist at India Ratings, said this could also be viewed as an indication of RBI's policy stance inching towards tightening from neutral after announcing neutral from accommodative in February 2017."
Economists expect a prolonged hold in the policy rates so that inflation is not stoked by Seventh Pay Commission, GST and El Nino,
However, RBI governor Urjit Patel seemed optimistic about lending rates coming down.
In his monetary policy statement, the governor, said, "Banks have reduced lending rates, although further scope for more complete transmission of policy impulses remains, including for small savings and administered rates."
Citi India said in a note, "The policy reaffirms our call that RBI is likely to keep rates on hold for as long as 12-18 month. There is no softening in RBI's anti-inflation bias. The RBI firmed its inflation forecast to 5% in the second half of FY18 from its earlier estimate of 4.5-5% and highlighted more upside risks than downside."
Rating agency Crisil said the inflation forecast can be subject to upside risk from the uptick in global commodity prices, the impact of increase in house rent allowance under the Pay Commission and one-off effects of the implementation of the GST."
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