Reserve Bank of India Keeps Repo Rates On Hold

  • Reserve Bank of India Keeps Repo Rates On Hold

Reserve Bank of India Keeps Repo Rates On Hold

RBI said inflation in the second half of the current fiscal is projected at 2.7-3.2 per cent.

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).

Maintains "calibrated tightening" stance: The central bank maintained "calibrated tightening" stance that it adopted in October 5 policy citing objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. RBI Governor Urjit Patel said fall in crude oil prices will impart downward bias to inflation trajectory.

The repo rate is the rate at which the RBI lends short-term money to the banks. However, only one member - Ravindra H Dholakia, former Professor, Indian Institute of Management, Ahmedabad - voted for a change in the monetary policy stance from "calibrated tightening" to "neutral". CRR is the amount of funds that banks have to keep with the central bank as a proportion of their deposits.

It said the projected inflation path remains unchanged after adjusting for the HRA impact of central government employees as this impact dissipates completely from December 2018 onwards.

Governor Patel also ruled out any possibility of a cut in cash reserve ratio (CRR) to enhance liquidity. It noted that although Q2 growth was lower than that projected in the October policy, GDP growth in H1 has been broadly along the line in the April policy.

The rupee eased to 70.60 to the dollar from 70.50 before the policy statement, while the broader Nifty was down 0.8 percent at 3:39 pm. Economists suggested that the RBI kept its stance unchanged as it may be too early to alter its stance. The economic growth in the second half of 2018-19 has been predicted at nearly 7.3 per cent.

A pause in rate hikes is a welcome relief for Prime Minister Narendra Modi's ruling party as it prepares for an election that must be called by May.