New Delhi: The Reserve Bank of India on Wednesday kept its main repo rate at 6 percent for a third straight policy meeting at its final bi-monthly monetary policy review of the fiscal and retained its “neutral” stance, seeking to support a slowing economy even as inflation has accelerated to a 17-month high.
The reverse repo rate was held at 5.75 per cent.
It opted widely expected status quo in key rates citing inflation concerns and flagged risks from wider fiscal deficit.
Meanwhile, the Reserve Bank is expecting retail inflation to rise to 5.1 per cent in the last quarter of the ongoing fiscal due to rising crude oil prices and hike in salary components of government employees.
The central bank has also projected inflation to be in the range of 5.1-5.6 per cent in the first half of 2018-19.
The decision of the Monetary Policy Committee (MPC) is consistent with the neutral stance of the central bank aimed at achieving its medium-term target for CPI (consumer price index) of 4 per cent within a band of +/- 2 per cent, while supporting growth, the RBI in a statement said.
Repo rate is the rate at which the central bank of a country lends money to commercial banks against securities in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation. Reverse repo rate is the rate at which the RBI borrows money from the commercial banks.
In case of inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation. Similarly, the central bank will decrease the repo rate in case of a deflationary environment.
Following are the highlights of the RBI’s 6th bi-monthly monetary policy statement:
- Key lending rate (repo) unchanged at 6 pc;
- Reverse repo rate remains at 5.75 pc and marginal standing facility (MSF) rate and Bank Rate at 6.25 pc;
- Monetary policy’s stance neutral;
- Petrol and diesel prices rose sharply in Jan, reflecting lagged pass-through of past increases in global crude prices;
- Retail inflation estimated at 5.1 pc in Q4 this fiscal and 5.1-5.6 pc in H1 of FY2018-19;
- Inflation likely to ease to 4.5-4.6 per cent in H2 of FY19;
- Gross Value Added (GVA) growth for FY18 seen at 6.6 pc;
- GVA growth for 2018-19 projected at 7.2 pc;
- GST stabilising, which augurs well for economic activity;
- Early signs of revival in investment activity;
- RBI seeks pick-up in credit growth due to recapitalisation of PSBs and resolution proceedings under IBC;
- Export growth expected to improve further on account of improving global demand;
- RBI says focus of Union Budget on rural and infrastructure sectors a welcome development;
- Five members voted in favour of status quo in interest rate; one member voted for increase of 0.25 pc;
- Next meeting of the MPC on April 4 and 5.