RBI announced its much awaited monetary policy couple of days back. It was almost in line with the market pundits expectation that the RBI would not increase the rate and as such, RBI has left all the key rates unchanged. It left the Repo rate and Reverse Repo rate at 4.75% and 3.25% respectively. The RBI kept the Cash Reserve Ratio, the cash banks to hold with Central Bank at its previous level of 5%. The only change the RBI made was it increased the SLR to 25% from 24%.

The RBI has indicated that it is keenly watching the inflation and it has revised it target of inflation to 6.5% from 5% earlier at the end of March 2010. This has given room for the market to predict that the RBI would no sooner than later will raise interest rates. The raise in SLR is construed as a challenge to the real estate sector. The RBI in its monetary policy review has indicated its concern over rising property prices. This set in to increase the provisioning requirement for advances by banks to the commercial sector to 1% from earlier 0.4%. This is surely going to hit realty companies that are looking to hike their borrowings from the banks. On one hand the hike in provisioning and on the other, increase in SLR is surely going to make the banks to increase the interest rates on loans to realty sector. This is a surely a worse news for the realty sector, while it is slowly coming out of the woods.

The other main concern for the RBI which was clearly reflected in its policy review is inflation which is set to rise because of poor monsoons in the recent months. The wholesale price index (WPI) started to rise because of rise in food prices. But the normal indicator for price rise tracked by India and by other countries through consumer price index is no mood to get down. In the CPI – consumer price index, front in which food has got higher weightage, the Indian consumer prices are considerably higher than in many other countries.

The favorable fact highlighted in the monetary policy by RBI is the global economic outlook. According to RBI the global economy has considerably improved since July 2009 and the same is visible in India too. Accordingly, it has referred that the present concern across all governments has shifted from managing the crisis to maintaining the growth. In this front the RBI has reiterated its concern that if the inflation continues its northwards movements, it has to raise the interest rate accordingly in the future. This had its chilling effect in the market, which tail – spinned after the monetary policy. The broader share market has fallen more than 2% percent at the end of the day. The overall global market is also in a consolidation phase and this also had it effects in the Indian market. After yesterday’s correction in the Indian market, it looks like we are going to witness a consolidation phase for some more time before a fresh rally begun.