March 17, 2018

RBI keeps repo rate unchanged at 6%, maintains neutral policy stance

06 December 2017, 12:18 | Lucia Cruz

RBI seen keeping rates unchanged

By Wednesday afternoon once the policy is made public the debate will be more on its tone—is it more hawkish or less dovish

The 6-member Monetary Policy Committee (MPC), headed by Reserve Bank of India Governor Urjit Patel, kept the repo rate unchanged at 6 per cent and reverse repo at 5.75 per cent.

Similarly, the NSE Nifty was trading lower by 78.70 points, or 0.77 per cent, at 10,039.55.

Maintaining a hawkish stance, the Reserve Bank of India today maintained status quo on key interest rates even as revised its inflation forecast upwards. Meanwhile, Fitch Ratings lowered its forecast for India's economic growth for FY2017-18 and FY2018-19 to 6.7 percent and 7.3 percent, respectively.

GDP growth had slumped to a three-year low of 5.7% in the June quarter.

Those fears, plus the prospect they would further reduce the scope to cut rates amid accelerating inflation, have sent benchmark 10-year bonds sharply lower since the RBI cut the repo rate on August 2, with the yield up more than 60 bps. That's still low by Indian standards, but not far from the central bank's 4 percent target.

Japanese financial services major Nomura said in a report that input cost pressures are marginally higher now, which along with higher food inflation is likely to push retail inflation slightly above the RBI's target of 4 per cent in November and beyond.

That has sparked renewed calls from some government officials for the RBI, which has cut the repo rate by 200 bps since January 2015, to trim again.

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The next monetary policy meeting will be held in February 6, next year.

The October bi-monthly statement projected inflation to rise and range between 4.2-4.6 per cent in the second half of this year.

Repo rate is the rate at which banks the RBI lends to other banks and is considered the key policy rate.

"In addition, concerns over the inflationary impact of high oil prices, bank recapitalization, and fiscal slippage risks will also leave the RBI wary of lowering rates further".

The figures showed that GDP accelerated to 6.3 percent in the three months to September after five quarters of slowing growth stretching back to early 2016.

The decision comes much to the expectation of experts and market-watchers who had predicted the stay in rates.

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