RBI monetary policy: Repo rate unchanged at 6%, inflation forecast hiked

RBI deputy governor said, 'Liquidity conditions continue to normalise'

The monetary policy committee (MPC) of the Reserve Bank of India (RBI), led by Governor Urjit Patel, kept its policy rate unchanged on Wednesday, as widely expected, after inflation accelerated to a seven-month high and stronger economic growth reduced the need for monetary stimulus.

The market also seemed to be of the view that the six-member monetary policy committee will not change the policy repo rate. Besides rising inflation, the issues of hardening bond yields and tightening liquidity have reduced the scope for RBI loosen its stance.

Ten economists and bond dealers polled by Business Standard said the policy repo rate was expected to stay put at six per cent. Even as the policy stance would likely remain ‘neutral’, many economists said this could be the end of a rate-easing cycle.

In the October review of its monetary policy, the MPC had kept the benchmark interest rate unchanged and lowered its growth forecast for the country’s economy in 2017-18 to 6.7 per cent.

The central bank had last tinkered with the policy rate in August, when it brought the repo rate down by 25 basis points to a six-year low of six per cent.

The RBI also kept the reverse repo rate unchanged at 5.75 per cent. Wednesday's decisions were widely predicted after the annual rate of consumer inflation increased in October to 3.58 per cent, driven by higher food and crude oil prices. That's still low by Indian standards, but not far from the central bank's 4 per cent target.

Nonetheless, some analysts still see scope for a rate cut should inflation accelerate less than expected. That is because the economy, though recovering from July's bumpy launch of a national sales tax, is not yet growing fast enough to create the jobs needed for India's young workforce.

The RBI on Wednesday left its policy stance "neutral", which might leave the door open for a rate move at its next meeting in February. The central bank said it would track economic growth and inflation data, adding that risks to both "evenly balanced".

Five members of the Monetary Policy Committee (MPC) voted to keep rates unchanged, with one voting for a 25 bps cut.

"Keeping in mind the output gap dynamics, the MPC decided to continue with the neutral stance and watch the incoming data carefully," the RBI said in a statement.

3:38 PM

Key highlights

 

RBI maintains status quo, keeps repo rate unchanged at 6 per cent; maintains neutral stance.

 

MSF, bank rate unchanged at 6.25 per cent

 

Real GVA growth aim stays at 6.7 per cent with risks evenly balanced

 

MPC committed to keep CPI close to 4 per cent on durable basis

3:32 PM

Monetary policy highlights:

 

— Q2 Growth was lower than projected in the October policy

 

— Recent increase in crude prices may have a negative impact on GVA growth

 

— Shortfalls in kharif production and rabi sowing pose downside risks to agri outlook

 

— There has been some pick-up in credit growth in recent months

3:27 PM

RBI's growth projections for FY18

 

— FY18 real GVA maintained at 6.7 per cent

 

— Q3 GVA seen at 7 per cent

 

— Q4 GVA seen at 7.8 per cent

3:25 PM

Highlights of Monetary Policy: 

 

— Upward trajectory in flation may continue in the near-term

 

— Impact of HRA by the central government is expected to peak in December

 

— Recent rise in international crude oil prices may sustain

 

— Q3, Q4 inflation estimated in 4.3-4.7 per cent range

3:19 PM

RBI Governor Urjit Patel: Governance reforms for all PSU Banks will also feature for all banks. PSU Bank recap bonds to be front-loaded for banks with better balancesheets.

3:18 PM

RBI Governor Urjit Patel: MPC considered upside pressure on food and living costs.

3:16 PM

RBI deputy governor: Will consider OMOs if liquidity is to be absorbed or injected on durable basis as RBI is still essentially absorbing liquidity.

3:15 PM

RBI deputy governor: Overhang of liquidity surplus in banking has come down and banking system is moving towards neutrality. Liquidity condition to be marginally surplus by year-end. Expect liquidity neutrality by first half of next FY.

3:12 PM

Working closely with Govt, recapitalization will be front-loaded for banks that have exercised prudence, governance reforms will also feature as part of the overall plan to ensure money is used to strengthen PSBs: Urjit Patel

3:12 PM

The next meeting of the MPC is scheduled on February 6 and 7, 2018.

3:11 PM

On the whole, inflation is estimated in the range 4.3-4.7 per cent in Q3 and Q4 of this year, including the HRA effect of up to 35 basis points, with risks evenly balanced.

3:11 PM

The projection of real GVA growth for 2017-18 of the October resolution at 6.7 per cent has been retained, with risks evenly balanced.

3:09 PM

Also Read: RBI keeps repo rate on hold at 6%, inflation forecast increased

3:08 PM

"RBI will continue to manage liquidity rate, will also consider open market consideration," said Viral V Acharya.

3:05 PM

RBI: Believe it is possible to link all bank accounts to Aadhaar by December-end