ADVERTISEMENTREMOVE AD

RBI Monetary Policy: MPC Keeps Repo Rate, Reverse Rate Unchanged

With the repo rate at 6% and reverse repo rate at 5.75%, the panel maintained a neutral stance on monetary policy.

Published
India
3 min read
story-hero-img
i
Aa
Aa
Small
Aa
Medium
Aa
Large
Hindi Female

The monetary policy committee left interest rates unchanged at its first meeting of the new financial year, indicating that the economy is finely balanced between a pick-up in growth and a rise in inflation. The MPC has also maintained a neutral stance on the monetary policy.

Following the MPC’s review, the benchmark repo rate remains unchanged at six percent. The reverse repo rate has been retained at 5.75 percent. The decision was taken by a vote of 5-1 with Michael Patra voting for a 25 basis point hike in rates. The decision was in line with market expectations. All of the 42 economists polled by Bloomberg News forecast a status quo on rates.

The MPC decided to keep the policy repo rate on hold and continue with the neutral stance. The MPC reiterates its commitment to achieving the medium-term target for headline inflation of four percent on a durable basis.  
MPC Statement
ADVERTISEMENTREMOVE AD

Inflation Forecast Cut

The MPC’s decision comes against the backdrop of moderate inflation, even though upside risks have increased. Consumer price inflation in February came in lower than expected at 4.4 percent. For the March quarter, inflation is expected to be below the RBI’s 5.1 percent estimate for average inflation. For 2018-19, the MPC has reduced its inflation forecast  marginally. It now expects CPI inflation in the first half of the year at 4.7-5.1 percent, and inflation in the second half of the year is seen at 4.4 percent.

Excluding the impact of house rent allowance revisions, CPI inflation is projected at 4.4-4.7 percent in the first half of 2018-19 and 4.4 percent in the second half, said the MPC. The committee, however, continued to caution on upside risks emerging from several factors, including strengthening aggregate demand, fiscal slippage and global crude oil prices.

0

Growth Seen Strengthening

Growth, meantime, is recovering along expected lines. The MPC, in February, projected gross value added growth at 7.2 percent in the financial year 2018-19. In its latest review, the MPC forecast GDP growth of 7.4 percent in 2018-19. Risks to this forecast are evenly balanced.

The MPC notes that growth has been recovering and the output gap is closing. This is also reflected in a pick-up in credit offtake in recent months. The large mobilisation of resources from the primary capital market should support investment activity further. While the domestic cyclical recovery is underway, the long-term growth potential is also expected to be reinforced by various structural reforms introduced in the recent past.  
MPC Statement
ADVERTISEMENTREMOVE AD

Along with the monetary policy review, the RBI also put out its twice-a-year monetary policy report detailing its view on various aspects of the economy.

RBI On Inflation

  • Inflation expected at 5.1 percent in Q1 FY19, moderating to 4.7 percent in Q2 and 4.4 percent in Q3 & Q4
  • Inflation expected to firm up in Q1 2018-19 before moderating
  • Inflation expectation of urban households remain elevated
ADVERTISEMENTREMOVE AD

RBI On Growth

  • Real GDP growth expected to strengthen to 7.4 percent in 2018-19
  • Economic activity expected to accelerate with strengthening of investment activity, supported by consumption demand and robust credit growth
  • Aggregate demand expected to improve supported by GST implementation, recapitalisation of banks, resolution of distressed assets
  • Pick-up in global trade could help reduce the negative drag from exports
  • Pick-up in investment rate could signal a turning point in the cyclical component of growth
ADVERTISEMENTREMOVE AD

RBI On Fiscal Concerns

  • Key risk to inflation outlook is the risk of fiscal slippage in a scenario of rising aggregate demand
  • Fiscal risks could also engender a broader weakening of macro-financial conditions

(The story was originally published on Bloomberg Quint and has been republished with permission.)

(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)

Read Latest News and Breaking News at The Quint, browse for more from news and india

Speaking truth to power requires allies like you.
Become a Member
3 months
12 months
12 months
Check Member Benefits
Read More
×
×