The Monetary Policy Committee (MPC) of the RBI announced the policy for December and surprised the market by keeping rates constant. In fact, the expectations in the bond markets, the stock markets and also in the currency markets were that the RBI would certainly cut rates by 0.25 % or 25 bps. Here are some of the key highlights of the monetary policy.

· The MPC opted to keep the repo rates static at 5.15%. By maintaining the status quo, the reverse repo rate stays at 4.90% and the MSF and Bank rate stay at 5.40%

· The stance of the monetary policy was retained as “Accommodative” giving hopes of further rate cuts in future

· Unlike the last two policies, when the focus was purely on reviving growth, the MPC included inflation control as a key factor in this policy

· All six members voted unanimously for maintaining status quo on the rate and also on the stance of the policy.

· Liquidity has been surplus and that will be retained till further notice. That is useful in keeping short end rates low.

Non monetary measures

· RBI laid out detailed regulatory guidelines to reduce concentration risk in urban cooperative banks and also integrate these banks into central credit repository

· An SRO will be set up by RBI to develop the secondary market for loans and to standardize practices, documents and covenants

· For the benefit of peer-to-peer lenders (P2P lenders), RBI has increased the total exposure across all borrowers to a single lender from Rs.10 lakhs to Rs.50 lakhs

· Now residents and NRIs can take up OTC foreign currency position (forward cover) up to $10 million without giving proof of underlying exposure. This will offer more flexibility.