By Ruma Dubey

The market and everyone knew – this fifth credit policy would be a non-event. And that is what it was. It stuck stringently to the scripted path and kept all rates, growth and inflation targets, all status quo. And the overall stance was cautious but throughout the policy it has been accommodative.

In the ensuing Press Conference, the Governor very clearly stated that the focus was on transmission. He has stated very clearly in the policy that the rate reduction cycle commenced in January but less than half of the cumulative policy repo rate reduction of 125 bps has been transmitted by banks. The median base lending rate has declined only by 60 bps. To ensure more and proper transmission, RBI stated that it will shortly finalise the methodology for determining the base rate based on the marginal cost of funds, which all banks will move to. The RBI is expected to make an announcement to this effect next week.

It was also very reassuring to hear the Governor say that India is surely showing signs of a recovery, based on yesterday’s GDP but with areas of weakness. Given the quantum of investments promised, if they do translate, construction could be the first to pick up and if affordable housing does take off, it expects capital requirement to also increase. The same tone of optimism is reflected throughout the policy statement.

A quick look at the highlights of this policy:

• Repo rate under the liquidity adjustment facility (LAF) unchanged at 6.75%.

• CRR unchanged at 4%

• To continue to provide liquidity under overnight repos at 0.25% of bank-wise NDTL at the LAF repo rate and liquidity under 14 day term repos as well as longer term repos of up to 0.75% of NDTL of the banking system through auctions.

• The reverse repo rate under the LAF will remain unchanged at 5.75% and the marginal standing facility (MSF) rate and the Bank Rate at 7.75%.

• Current outlook for agricultural growth in FY16 appears moderate at best at this juncture

• Urban consumption is showing signs of a pick-up in some areas such as passenger vehicles sales, rural demand has been weakened by two consecutive deficient monsoons and slowing construction activity.

• Recent policy initiatives relating to rail, port and road projects are likely to improve construction activity

• In the external sector, exports contracted for the eleventh month in a row to October, indicative of the persisting weakness in global trade. Excluding petroleum products (PoL), however, the decline in exports was more moderate and early signs of a turnaround are visible in respect of readymade garments, drugs and pharmaceuticals and electronics.

• The growth projection for FY16 kept unchanged at 7.4% with a mild downside bias

• Implementation of the Pay Commission proposals, and its effect on wages and rents, will also be a factor in the Reserve Bank’s future deliberations, though its direct effect on aggregate demand is likely to be offset by appropriate budgetary tightening as the Government stays on the fiscal consolidation path.

• Reserve Bank will use the space for further accommodation, when available, while keeping the economy anchored to the projected disinflation path that should take inflation down to 5% by March
• 2017.

Now what? The Policy is over and we could turn our attention back to specific events. The big trigger which could really boost the markets is the passage of GST. All eyes will also be on the US Fed meet scheduled for 17^th Dec, midnight India time.