RBI keeps policy repo rate unchanged at 6.5%

RBI keeps policy repo rate unchanged at 6.5%

The Reserve Bank of India (RBI) on Wednesday retained the existing repo rate at 6.5% while maintaining the growth estimates at existing 7.4%.

However, RBI in the policy statement, said that there is a risk of downside in the GDP growth and outlook has been decelerated.

The move comes after the GDP growth for the September quarter dipped to 7.1% and the November CPI inflation touched a 13-month low of 3.3%.

"The decision of the MPC is consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for consumer
price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth," the central bank said in the statement, while lowering the inflation projections.

The apex bank, in the first two meetings of monetary policy committee (MPC) for 2018 – June and August, hiked the bank rate by 25 bps every time.

Consequently, the reverse repo rate under the LAF remains at 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.

"Taking all these factors into consideration and assuming a normal monsoon in 2019, inflation is projected at 2.7-3.2% in H2 of 2018-19 and 3.8-4.2% in H1 of 2019-20," RBI said in a policy statement.

Repo rate is the rate at which the central bank of a country (Reserve Bank of India in the case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.

Also, according to the experts, liquidity concerns might have prompted RBI to hold on to the rates. "The Reserve Bank injected durable liquidity amounting to Rs 36,000 crore in October and Rs 50,000 crore in November through open market purchase operations, bringing total durable liquidity injection to Rs 1.36 lakh crore for 2018-19. Liquidity injected under the LAF, on an average daily net basis, was Rs 56,000 crore in October, Rs 80,600 crore in November and Rs 10,500 crore in December," RBI said.

Viral Acharya, RBI's deputy governor, assured that apex bank is keeping regular watch over liquidity condition, and is in regular touch with markets regulator Sebi over the issue, post IL&FS default. "Our intensity of the open market operations has increased recently," he told reporters.

The decision to hold on to the growth projections comes, as the crude oil price has been stable and the rupee has been strengthening.

Most analysts had predicted a 25 bps rate hike by RBI. Meanwhile, the markets reacted negatively to the RBI's policy decision, as BSE Sensex tanked by 266.14 in the intra-day trade and NSE Nifty tanked by 92.75 points.


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