RBI keeps key rates unchanged Bank and Real Estate stocks surge

The Reserve Bank of India (RBI) left the key lending rate unchanged at 7.75% today, despite worries about inflation. Analysts say that RBI took these steps to ease the upward pressure on the Indian Rupee which touched a 9 year high against the dollar earlier today.

RBI estimates the economy to grow at 8.5% in the financial year ending March 2008. This is lower than the 9.2% expected for financial year ending March 2008.

RBI kept the reverse repo rate unchanged at 6% and held the bank rate steady at 6%. There was also no change to the cash reserve ratio CRR beyond a previously announced increase to 6.5% due on 28 April 2007.

RBI reduced interest rate ceilings on non resident deposits. RBI also proposed allowing corporates to repay more external commercial borrowings (ECBs) ahead of schedule. RBI also proposed increasing the aggregate ceiling for overseas investment by mutual funds to $4 billion from $3 billion and increased the foreign portfolio investment limit for listed firms.

The realty sector which is interest rate sensitive and has a very high leverage spurted after this announcement was made today. After remaining subdued for the last few months this announcement served as a major boost for real estate stocks. Real Estate majors such as Unitech, Indiabulls Real Estate, Ansal Housing, Mahindra Gesco Developers, Parsvnath developers, Akruti Nirman, and Sobha Developers had surged ahead in today’s trading. These scrips registered gains between 5% and 10% each.

Another sector that surged after the RBI announcement was made is the banking sector. Banking stocks spurted. Banking majors such as State Bank of India, ICICI Bank and HDFC Bank registered gains between 3% and 6%.

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