Banking stock tumbles as RBI keeps repo rate unchanged

The Reserve Bank of India on Wednesday kept the key rates unchanged in its sixth bi-monthly monetary policy. Soon after the announcement, the banking stocks tumbled. 

At 1442 hours Sensex was trading at 28,213.12, down 122.04 points or 0.43%, while, Nifty was at 8,736.40, down 31.90 points or 0.33%. Sector-wise, banking dropped 1.04% or 243.53 points. 

Punjab National Bank (-1.88%), IndusInd Bank (-1.15%), Bank of Baroda (-1.09%), Kotak Mahindra Bank (-1.05%), Axis Bank (-0.77%) were the top losers among banking stocks.

Now, the repo rate under the liquidity adjustment facility (LAF) will be at 6.25%. Consequently, the reverse repo rate under the LAF remains unchanged at 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.

"The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5% by Q4 of 2016-17 and the medium-term target of 4% within a band of +/- 2%, while supporting growth," RBI said in a statement. 

RBI's decision was not in line with experts' expectation for the second time. Some of the analysts had projected 25 bps cut this time. At its last meeting, eight weeks ago, on December 7 too the MPC had unanimously voted to keep the rates unchanged. 

Commenting on the RBI's decision, Shishir Baijal, Chairman & Managing Director, Knight Frank India, said, "The RBI’s decision to keep the policy rate unchanged is disappointing for the real estate sector. With controlled inflation and the government showing fiscal prudence, one expected the Monetary Policy Committee to have cut the policy rate by minimum of 25bps. This would have offered banks leeway to further lower lending interest rate to increase capital expenditure and spur growth in employment and sentiment prevailing in the economy. All these factors would have given substantial impetus to the beleaguered real estate sector."