RBI Keeps Repo Rate Unchanged at 6%

In the bi-monthly monetary policy review meeting, the Reserve Bank of India announced that the repo rate and reverse repo rate will remain unchanged at 6% and 5.75%.

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RBI Keeps Repo Rate Unchanged at 6%
RBI Keeps Repo Rate Unchanged at 6%

The Reserve Bank of India on Wednesday has decided to keep the repo rate unchanged at 6%. The decision was taken by a six-member Monetary Policy Committee (MPC), which was headed by the Governor, Urjit Patel. The RBI had earlier cut-down the repo rate by 25 basis points (bps) in August.

“The decision of the Monetary Policy Committee (MPC) is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth,” said RBI in its fourth policy review meeting.

The decision was taken after five of the MPC member voted in favour of the decision. While Dr Ravindra H Dholakia was in favour of reducing policy rate by at least 25 basis points, other members, such as Dr Chetan Ghate, Dr Pami Dua, Dr Michael Debabrata Patra, Dr Viral V. Acharya and Dr Urjit R Patel voted in favour of keeping the repo rate unchanged.

The reverse repo rate, the rate at which Reserve Bank of India borrows money from commercial banks in India is also remain unchanged at 5.75 per cent.

Since the meeting of MPC in August 2017, global economic activity has been further strengthened and become broad-based. However, the recent hurricane could have impact the global economic activity in the near future.

RBI Governor, Urjit Patel
RBI Governor, Urjit Patel

RBI Governor Urjit Patel also stated that the central banks will continue to keep a ‘neutral’ stand. “The MPC (Monetary Policy Committee) decided to keep the policy stance neutral and monitor incoming data closely. The MPC remains committed to keeping headline inflation close to 4 per cent on a durable basis,” the policy review said.

Senior Economist of HDFC Bank, Tushar Arora, upon commenting on the RBI’s decision said, “No surprises as such. Going strictly by the optics of headline inflation is unlikely to result in rate cuts”. As per the PTI (Press Trust of India) the finance ministry officials are saying that the government and industry bodies though had been pushing RBI for yet another rate cut. There is scope for monetary easing because of inflation projections.

To drive the investment and growth in the private sector, The Confederation of Indian Industries (CII) sought a cut of 100 basis points. “I strongly recommend that there should be a 100 basis points rate cut. We need out of the box thinking. We all talk that the private sector investments should come in and we want the economy to pick up on a high growth trajectory,” CII Director General Chandrajit Banerjee. Advocating the same, Assocham was also in favour of rate cut by much as 50 basis points. “At least 50 basis points elbow room can be taken with regard to 3.2% fiscal deficit for the current year and the next financial year,” they said.

The central bank has said that it is imperative in order to reinvigorate investment activities which will, in turn, will revive the need of bank credit as the existing capacities will be utilised and the requirement of new capacity gets open up to be financed. It also said, “Recapitalising public sector banks adequately will ensure that credit flows to the productive sectors are not impeded and growth impulses not restrained.”

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