India's central bank says cash crisis is hurting the economy

India Inc, which was hoping for a 0.5 per cent cut in interest rate on account of surge in bank deposit following demonetisation, expressed disappointment saying RBI should cut the rate to support growth of trade and industry hit by demonetisation.

The decision of the MPC remains consistent with the objective of achieving consumer price index (CPI) inflation at 5 percent by Q4 of 2016-17, while maintaining a medium-term target of 4 percent within a band of +/- 2 percent, while supporting growth.

Chief executive officers (CEOs) said they would now wait to take investment decisions till the economy improves, by April next year. Stock markets have fallen sharply after RBI kept its rates unchanged.

The lower repo rate is in favour of the citizens since it men cheaper loans for buying house, auto etc.

The GDP growth estimate has been lowered to 7.1 per cent in 2016-17 from the earlier projection of 7.6 per cent, Patel said.

India's economy grew by an annual 7.3 percent between July and September, the fastest for any large economy.

London-based research consultancy Capital Economics commented that it was not expecting rates to stay put. It has also reduced growth forecast for the current financial year down to 7.1 per cent following disappointing Q2 performances and the disruption due to demonetisation continuing to play out.

The central bank flagged upside risks to inflation and said the withdrawal of high-value banknotes could lead to a temporary reduction in inflation.

The cost of borrowing will remain unchanged at 6.25% ahead of a possible increase in U.S. interest rates later this month. After raising its benchmark in December a year ago, the US Federal Reserve is at it once again, and it is expected that the Fed will raise its interest rates sooner or later this month.

State Bank of India Chairman Arundhati Bhattacharya said on Wednesday she welcomed the reversal on the CRR hike, even as she called the RBI decision to keep interest rates unchanged a "disappointment". It is high time to look through the transitory but unclear effects of the withdrawal of specified bank notes (SBNs). The markets should have adequate liquidity and if there is excess liquidity then the same can be absorbed through RBI market stabilisation scheme (MSS), whose limit has been enhanced to R6 lakh crore from Rs 30 thousand crore.

In keeping its policy setting steady, the central bank also expressed concerned about the risk of a flare-up in inflation.

In another significant move, he said that close to Rs 12 lakh crore notes of demonetised notes have come back to banks since they (Rs 500 and Rs 1,000 notes) were declared invalid by Prime Minister Narendra Modi in a surprise announcement on November 8, 2016.



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