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

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

On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) made a decision to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0%.

The panel noted that there were several factors that threatened to push up inflation in the near term such as rising food and fuel prices, increase in input costs, implementation of farm loan waivers by select states. Charges on debit card transactions are one of the key reasons why people are not keen to go for cashless transactions.

The RBI Governor said MPC has kept its policy stance neutral because "nothing has happened between October and now on macro economic front to warrant that". Ultimately, though, the central bank has once again proffered a word of circumspection to fiscal authorities: taken together, the farm loan waivers implemented by some States, the partial reduction of excise duty and Value-Added Tax on petroleum products and the GST rate cuts could result in fiscal slippage with accompanying consequences for price stability.

A majority of the 20 participants in an ET poll had expected rates to remain unchanged.

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"We don't expect the tone to be outright hawkish as the RBI might need to trim down its growth projections for FY18, which at current levels is optimistic", said Rao, who expects a hold on Wednesday and in February. Price gains as measured by the Consumer Price Index had accelerated to a seven-month high in October and the RBI's survey of household expectations for inflation over both the three-month and one-year horizons showed a "firming up".

Noting several upside risks to inflation, RBI raised its fiscal second half inflation estimate range marginally to 4.3-4.7%.

Market responses were mixed. As a result, the BSE Sensex closed 205.26 points down at 32,597.18 on Wednesday. The rupee lost 0.2% to close 64.52 to the dollar. One basis point is one-hundredth of a percentage point. This is the fourth time in a row that Dholakia has cast a dissenting vote. Five of the six-member monetary policy committee voted for the move, which was predicted by 42 of 48 economists in a Bloomberg survey with the rest seeing a cut to 5.75 percent. But the decision was not unanimous. "In the primary capital market, resource mobilisation has increased significantly. Recent reforms have contributed to an improvement in India's ease of doing business ranking which should help sustain foreign direct investment". RBI's retention of the GVA projection for the financial year at 6.7 per cent and maintenance of neutral stance coupled with the impending recapitalisation programme for public sector banks will further help in improving the overall credit growth. Meanwhile, the Confederation of Indian Industry (CII) said that a reduction in interest rates would give the necessary signal that fiscal and monetary policy are working in consonance to give a boost to growth.

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