RBI keeps policy rate unchanged at 6 pc

RBI keeps policy rate unchanged at 6 pc

RBI keeps policy rate unchanged at 6 pc

The Reserve Bank today stuck to the widely expected status quo in key rates citing uncertainties over inflation, which may be fuelled by rising crude oil prices, fiscal slippages and higher prices of foodgrain.

The Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel expects the growth rate to accelerate to 7.4 per cent in 2018-19, up from 6.6 per cent last fiscal, ended March 31, mainly on account of the revival of investment activity.

With regard to prices, the MPC lowered retail inflation target for the first half of current fiscal to 4.7-5.1 per cent on sharp moderation in food price rise.

The status quo policy of RBI will be neutral to the EMIs for housing and vehicle loan borrowers, but banks are free to tinker with both deposit and lending rate depending on their asset liability position.

The decision of MPC is consistent with the neutral stance of monetary policy in consonance with the 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.

The MPC maintained status quo for the fourth consecutive time since August last year.

Following the decision, the repo rate, at which the central bank lends short-term money to other banks, will continue to stay at 6 per cent. The reverse repo, the rate at which it borrows from banks and absorbs excess liquidity, will remain at 5.75 per cent.

This is the first bi-monthly monetary policy for 2018-19 and the next would be announced on June 6.

The decision of MPC comes against the backdrop of government's assertion that both the fiscal deficit as well as the revenue shortfall in 2017-18 will be lower than the upwardly revised estimates given in the Union Budget.

The government has also announced that its market borrowing would be only Rs 2.88 lakh crore in the April-September period of 2018-19 as against Rs 3.72 lakh crore it had borrowed in the corresponding period of the last fiscal, 2017-18, ended on March 31.

Patel noted that inflation print for February was lower than the expected but the is MPC always looks ahead.

"MPC believes there are several uncertainties surrounding the baseline inflation path. First, the revised formula for MSP (minimum support price) as announced in the Union Budget 2018-19 for kharif crops may have an impact on inflation, although the exact magnitude will be known only in the coming months," he said.

Second, the staggering impact of house rent allowance revisions by various state governments may push headline inflation up, he said.

Thirdly, he added, in case there is any further fiscal slippage from the Union Budget estimates for 2018-19 or the medium-term path, it could adversely impact the outlook on inflation.

There are also risks to inflation from fiscal slippages at the level of states on account of higher committed revenue expenditure, he said.

Besides, recent volatility in crude prices has imparted considerable uncertainty to the near-term outlook on inflation.

Crude oil prices are hovering around USD 70 per barrel putting pressure on the government to cut duty on this.

Five members of the panel, including the RBI Governor, voted for a status quo while executive director Michael Patra was the lone member who wanted the key rate to be hiked by 25 basis points.

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