RBI keeps repo rate unchanged at 6.5% in monetary policy review meeting

06 December, 2018, 05:41 | Author: Regina Silva
  • Economy       RBI holds interest rates amid slowing inflation
       
       	        Anirban Nag         5 December 2018

The central bank also introduced proposals to improve policy rate transmission and credit discipline, besides initiating a predictable liquidity injection over the next six quarters, starting January, through a phased reduction of 25 basis points (bps) every quarter in statutory liquidity ratio (SLR).

The Reserve Bank Wednesday lowered retail inflation projection in the range of 2.7-3.2 per cent for the second half of the current fiscal, citing normal monsoon and moderate food prices. RBI Governor Urjit Patel said fall in crude oil prices will impart downward bias to inflation trajectory.

The decision to pause on the policy repo rate, which was widely expected by bankers and economists, by the six-member Monetary Policy Committee (MPC) was unanimous.

Since embarking on a tightening cycle in June, the RBI has raised its policy repo rate by 50 basis points, with the last increase to 6.50 percent made in August.

While the decision on keeping the policy rate unchanged was unanimous, Ravindra H Dholakia voted to change the stance to neutral. CRR is the amount of funds that banks have to keep with the central bank as a proportion of their deposits.

RBI keeps repo rate unchanged at 6.5% in monetary policy review meeting

This is for the second time in a row that the central bank did not tinker with the interest rate.

RBI also retained the GDP growth projection for FY19 at 7.4 percent.

At present, the Cash Reserve Ratio (CRR) balance of banks at the end of the day is being disclosed with a lag of 2-3 days, while the details of the currency in circulation are being released with a lag of one week. The growth in Gross Domestic Product (GDP) in July-September is the lowest in three quarters but better than 6.3 per cent in the same period of the previous year. For the H1 of FY20, inflation is projected at 3.8 to 4.2%.

But, there are now clearer economic reasons for India to avoid going higher, analysts say.

The government in turn has been putting pressure on the RBI to ease lending rules and nurse a weakened shadow banking sector at a time when banks laden with bad loans have become hesitant to lend.

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