RBI Policy Updates: Repo rate unchanged but lending rates may fall ahead

3.50 pm: With that, we bring our live blog to a close.3.45 pm: On the whole, the Reserve Bank's monetary policy decision came in as a disappointment but the markets digested it well.Key takeaways from the policy:- FY17 growth (GVA) forecast cut to 7.1 percent from 7.6 percent previously.- Inflation outlook, and thereby the central's bank's 5 percent target for March 2017, remains tight given chances of an oil and temporary food price spike.- It further said that the RBI does not see a prolonged adverse impact from demonetisation and said it was doing its best to bring back cash in the form of new tender. It did not, however, give any timeline on when limits on withdrawal will be lifted.- Separately, the RBI said it will withdraw its decision to force banks to park all the excess deposits they got in the wake of demonetisation with it as part of non-interest-earning cash. The surge of deposits at banks will help them reduce lending rates, experts say.- Worryingly, the central bank said banks had received Rs 11.5 lakh crore as deposits, a bulk of the Rs 14 lakh crore in Rs 500 and Rs 1,000 notes that was demonetised in an overnight move on November 8. The government was hoping that at least a part of the money will not come back into the system.- Perhaps the most important communication was when RBI Governor Urjit Patel categorically said that if bank deposits are lesser than the amount of currency that was demonetised (resulting in a perceived "windfall" for the RBI to the extent of the reduced liability), any such "surplus" will not be given to the government as a form of a special dividend. Many experts have said it would be wrong to look at the gain as a profit and that the RBI should merely revalue the liability on its books.3.30 pm: The stock market has come to a close. "Down but not out," as Sonia Shenoy says on CNBC-TV18.The Sensex has closed 155 points lower but crucially held above the 26,000 market. The Nifty closed above 8,100. Bond yields rose, pushing prices lower and experts say their breath-taking rally recently may pause for a while.3.28 pm: What would have also helped the market today is the RBI's optimism that the economic disruption from demonetisation will not be drawn out.3.25 pm: Perhaps the optimism over the outlook on lending rates has helped the stock market, which is still in the red, but the price action is not exactly worrying.As CNBC-TV18's Anuj Singhal says on air, given the way the market's hopes on a rate cut were put paid to, the Bank Nifty could have easily plunged 600 points. Instead, it seems on track to close down 150 points.This has prompted technical analyst Ashwani Gujral to go out on a limb and recommend traders take long (buy) positions on this market."This type of price action usually means that the market will shrug it off and move higher."3.21 pm: Still, it is not all bad news, as the central bank's decision to reverse the CRR move will provide banks with surplus deposits, which will then feed into lending rates.In fact, economists CNBC-TV18 spoke to said they expect banks to cut rates progressively, which would set up the economy nicely for a turn in the long-term growth trajectory.3.16 pm: Property stocks are reeling under the policy decision, with the realty index falling 1.7 percent. HDIL is down 4.8 percent. Indiabulls Real Estate off 2.2 percent.3.13 pm: The Sensex, which was up about 200 points ahead of the policy, is continuing to trade 200 points (0.7 percent) lower following the decision. The Bank Nifty is down 1 percent.3.10 pm: The post monetary press interaction has come to an end, with not a single question being asked on the rate decision itself -- despite the fact that the decision itself was a bit of a shocker.3.06 pm: Some more questions coming the RBI's way on the demonetisation decision. When will limits on withdrawal be removed? "We are monitoring the situation based on demand coming. At this point, we can't give an exact on withdrawal of cash limits," says Deputy Governor Gandhi. 2.59 pm: CNBC-TV18's Latha Venkatesh asks how much cash has been deposited in banks in the wake of demonetisation.Deputy Governor Gandhi answers: "Rs 11.55 lakh crore." That is bad news for the government, which had hoped that a significant part of the cash economy -- the "black money" -- will never come back into the system and would be extinguished. (Sources have pegged this at Rs 13 lakh crore. It must be remember that the total amount of cash in Rs 500 and Rs 1,000 notes was a little more than Rs 14 lakh crore.)A reporter asks the Governor about rumours whether the RBI could transfer any surplus from deposits not made with banks, in the form of a special dividend.Putting paid to any such hopes, Patel categorically says it will not be done.2.56 pm: Not surprisingly, this conference is turning out to be largely about demonetisation and not the rate decision.2.53 pm: When asked bluntly if the demonetisation decision was taken in haste, Patel says that the government and RBI did foresee challenges due to secretive nature of the exercise and that they had done their best.2.48 pm: Governor Patel will now interact with the media. At the outset, he is asked about when queues will end and when the cash deficit in the economy could be plugged.Instead, Deputy Governor Gandhi answers, saying the central bank has supplied 19 billion notes to banks -- as much as it does in three years.The press conference is turning out to be a bit awkward.2.46 pm: RBI Deputy Governor R Gandhi is now speaking. He outlines the steps that the central bank has taken to infuse cash into the economy. "We are trying to provide adequate cash. We advise people to not panic or hoard cash. They should also consider adopting more digital payments as there are many available options."2.42 pm: The governor is now discussing the policy. Broadly, he says the recent rise in crude oil prices presents an upside risk to its 5 percent inflation target for March 2017. In light of this, the six-member monetary policy committee concurred that it was prudent to hold rates currently, given that a rate cut had been effected as recently as October.2.40 pm: RBI Governor Urjit Patel is now talking. Starts with thanking employees of banks and the central bank to "work tirelessly" in handling the outcome of the decision to demonetise Rs 500 and Rs 1,000 legal tender.2.36 pm: Separately, the RBI has issued a circular, saying it will withdraw the decision to ask banks to deposit all excess cash deposited in banks with it, following demonetisation."With the enhancement in the ceiling for issue of securities under the MarketStabilisation Scheme (MSS) to Rs 6,000 billion, it has been decided to withdraw the incremental CRR effective the fortnight beginning December 10, 2016."The decision to impose incremental CRR will help bring down lending rates.2.34 pm:The RBI is saying that it expects growth -- measured by GVA -- to come in at 7.1 percent in FY17, down from its earlier 7.6 percent forecast.Given that it is not much of a hit that the RBI sees on growth, not surprisingly, it does not expect inflation to completely collapse in the wake of demonetisation, as expected by some."The outlook for GVA growth for 2016-17 has turned uncertain after the unexpected loss of momentum by 50 basis points in Q2 and the effects of the withdrawal of specified bank notes, which are still playing out," the RBI says. "Downside risks in the near term could travel through two major channels: (a) short-run disruptions in economic activity in cash-intensive sectors such as retail trade, hotels & restaurants and transportation, and in the unorganised sector; (b) aggregate demand compression associated with adverse wealth effects. The impact of the first channel should, however, ebb with the progressive increase in the circulation of new currency notes and greater usage of non-cash based payment instruments in the economy, while the impact of the second channel is likely to be limited."2.32 pm: "The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and the medium-term target of 4 per cent within a band of +/- 2 per cent, while supporting growth," the RBI policy statement says.2.30 pm: Urjit Patel has pulled off a Rajan, catching the market on the wrong foot.THE RBI HAS LEFT THE REPO RATE UNCHANGED AT 6.25 PERCENT.The market has dropped like a rock, with the Bank Nifty taking it on its chin.2.25 pm:Five minutes to go before the monetary policy decision is announced. Stay tuned.2.20 pm: The price action in the market is interesting. Shares have headed higher through the day but a wee bit of profit-taking can now be seen. Bank Nifty is at the high point of the day, taking hope from expectations that a rate cut is a given.2.15 pm: A rate cut is usually expected to provide a fillip to spending but this time around, some experts are doubting it will have an immediate impact given that the cash drain-out has heavily weighed on consumption.A 50 bps cut will lift sentiment in the equity market, First Global Joint MD Shankar Sharma tells CNBC-TV18. "But it is a blunt instrument [when it comes to dealing with consumption]. The economy needs fiscal stimulus more than monetary stimulus," he says.2.10 pm: On the headline decision, it is all but a foregone conclusion the Reserve Bank will cut its benchmark repo rate. While most economists polled by CNBC-TV18 said they foresee a 25 basis point cut, they wouldn't be surprised by a 50 bps cut.A single basis point is one-hundredth of a percent.A 25 basis point (0.25 percent) rate cut will bring down the repo rate -- the rate at which RBI lends to banks -- to 6 percent.2.05 pm: Prior to the demonetisation decision, the Reserve Bank was staring at smooth sailing, when growth was expected to pick up, inflation was seen remaining comfortable and the rupee too wasn't exactly nervous.But in the wake of the cash ban, it remains to be seen whether the RBI revises its growth and inflation outlook, and what steps it takes further to tackle its challenges.Recently, it pegged the cash reserve ratio (CRR) on all incremental deposits made with banks in the wake of demonetisation to 100 percent -- the usual CRR is 4 percent. CRR is the cash that banks keep with the central bank without earning interest.Later, it upped the limit on securities issued the market stabilisation scheme (MSS) 20-fold to Rs 6 lakh crore for the year. The MSS is basically issued to manage liquidity and forex rates.Between these two, one of the steps may be rolled back.2.00 pm: Welcome to the live coverage of the Reserve Bank of India's fifth monetary policy review of the financial year.Today's rate meeting assumes significance in light of it being the first since the Narendra Modi government announced its historic decision to demonetise Rs 500 and Rs 1,000 currency notes on November 8.Being arguably the single biggest monetary step in the history of independent India, demonetisation has a cascading effect on every aspect of the economy: liquidity, growth, interest rates, inflation and forex.Along with the government, the Reserve Bank has taken some stick on the execution of the exercise and observers will look to decipher the subtext of Governor Urjit Patel's comments at the post-policy conference with respect to demonetisation's impact on the economy.