RBI keeps repo rate unchanged at 6 percent, stance stays at 'neutral'

RBI keeps repo rate unchanged at 6 percent, stance stays at 'neutral'

The first bi-monthly report for 2018-2019 mentions, "The Monetary Policy Committee (MPC) chose to keep the policy repo rate on hold and continue with the neutral stance". In August last year, the repo rate was reduced by 0.25 percent to 6 percent, which is its low level of six years. The RBI kept the repo rate and reverse repo rate unchanged at 6 percent and 5.75 percent respectively.

In a repeat of the previous policy review in February, five members of the MPC, including the three external ones and the Governor, voted in favour of the decision, while RBI Executive Director Michael Patra voted for an increase in the repo rate by 25 basis points.

The RBI has also deferred the implementation of Indian Accounting Standards (Ind AS) for banks by one year.

This is a comfortable scenario for RBI while the only itch is of the crude oil which was pegged at $55 is now pegged at $68 and there is a potential risk to the Inflation.

The apex bank said that the models suggests FY20 real GDP growth will range from 7.4 percent to 7.9 percent.

"Furthermore, even as global growth and trade have been strengthening, rising trade protectionism and financial market volatility could derail the ongoing global recovery".

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The Economic Survey tabled in Parliament on January 29, had estimated that India would re-establish itself as the world's fastest-growing major economy with GDP expanding by 7-7.5% in 2018-19.

The apex bank also maintained that the Consumer Price Index (CPI) inflation forecast for the second half of FY19 is cut to 4.4 percent from 4.5 - 4.6 percent.

For the second half of the year, it expects CPI inflation to be around 4.4 per cent, including the impact of higher house rent allowance for central government employees, compared with its earlier forecast of 4.5 per cent to 4.6 per cent.

"If this is a permanent shift in the paradigm of inflation management from a singular focus on bringing long-term inflation down to 4 percent to an approach that is more supportive of growth, then the RBI might go for a long pause", Barua added.

The "inflation print for February did turn out to be softer than our projection", the central bank's governor, Urjit Patel, told media after the policy decision.

"However, MPC looks ahead".

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