Housing loans aren’t likely to get cheaper anytime soon and deposit rates aren’t expected to rise as banks claim they have already raised deposit rates. This is the key takeaway from the Reserve Bank’s sixth bi-monthly monetary policy statement on Wednesday. Policy rates were left unchanged, as expected, due to uncertainties over the monsoon and the impact of the higher minimum support price for farm produce announced in the Budget. The repo rate (at which banks borrow from the RBI) was left at six per cent. RBI governor Urjit Patel indicated he is flexible on the inflation target in the medium term, pegging the consumer price index inflation of four per cent within a band of plus-minus two per cent. However, Q4 inflation is now estimated at 5.1 per cent, including the impact of the housing rent allowance announced in the 7th Wage Commission.
The good news is that private investment is picking up after languishing for nearly two years. The governor stressed these green shoots reflected in bank credit taking off and increasing number of companies tapping the capital markets should be nurtured. It’s a welcome sign as government spending must be supported by private investment for the economy to grow. The number of taxes entrepreneurs have to contend with hasn’t gone unnoticed, and is a signal to the government that something should be done. To name just a few: dividend distribution tax, corporate tax, securities transaction tax on value of securities transacted on the stock exchange, capital gains tax, etc.
Whilst both domestic and global impulses are tilted to growth and increased global demand, the governor did well to caution against upside risks to the economy due to a possible spike in commodity and crude prices. Vigilance is the price that must be paid for a stable economy.
