Today RBI will review credit policy . RBI’s six-member Monetary Policy Committee (MPC) is meeting second time after demonetization
. Market is expecting 25 basis points cut in repo rate . Repo rate
is short form of repurchase rate .It is also known as short term lending rate. RBI
lends money to commercial bank as per this rate . Low repo rate is not only beneficiary
to commercial bank but also to industry . Commercial banks can lend money at low rate to
industry if they get benefited from RBI
.
In last meeting MPC had left repo
rate unchanged to 6.25 % . The decision was taken considering some internal as
well as external factors . The main external factors which were considered by
MPC were possible rate hike by US fed and rising oil price as well as US dollar
. At present US federal reserve has preferred pause for rate hike but concern
of rising oil price has not gone away . Rising oil prices is a
challenge to India’s growth. Economic Survey presented in Parliament has
also confirmed this view. The main internal factors considered by MPC were
situation after DeMo (demonetization) . After DeMo lending rates have already fallen by up to 1%. In spite of that there was little enthusiasm among borrowers which was also considered by
MPC in keeping repo rate unchanged . RBI,
acknowledging the demonetisation factor had lowered its gross value added
growth estimates for the current fiscal to 7.1% from 7.6% forecast earlier.
Considering above factors experts
feel that stock market is unlikely to rally further with repo rate cut of 25
basis points .Any more rewards or rosy outlook will provide excuse to push
market up though valuation is not so cheap. Any disappointment will pull market down . In that case Nifty's downside towards 8660 not ruled out .