RBI keeps key policy rates on hold as uncertainties loom

RBI Monetary Policy Meet

RBI Monetary Policy Meet

RBI said inflation in the second half of the current fiscal is projected at 2.7-3.2 percent. Consequently, the reverse repo rate under the LAF will remain unchanged at 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.

This is the second time in a row that RBI has maintained status quo on interest rates.

The broad-based weakening of food prices imparts downward bias to the headline inflation trajectory going forward, the RBI said in its fifth bi-monthly monetary policy announced here.

The decision to pause on the policy repo rate, which was widely expected by bankers and economists, by the six-member Monetary Policy Committee (MPC) was unanimous.

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In its previous policy review in October, the apex bank had projected the retail inflation to be around 3.9-4.5 per cent in the October-March period of 2018-19.

GDP growth retained at 7.4%: The MPC maintained GDP growth projections for 2018-19 has been projected at 7.4 per cent (7.2-7.3 per cent in H2) as in the October policy, and for H1:2019-20 at 7.5 per cent, with risks somewhat to the downside. However, only one member - Ravindra H Dholakia, former Professor, Indian Institute of Management, Ahmedabad - voted for a change in the monetary policy stance from "calibrated tightening" to "neutral".

Besides CRR, Banks have to invest certain percentage of their deposits in specified financial securities like Central Government or State Government securities. The economic growth in the second half of 2018-19 has been predicted at nearly 7.3 per cent. It expects inflation to quicken to 3.8-4.2% in the first half of the following year.

But, there are now clearer economic reasons for India to avoid going higher, analysts say. It is worth mentioning that the RBI, in its last bi-monthly meet in October, kept rates unchanged after two consecutive hikes starting June. "We perceive that India is slowly entering into a low inflation, slowing growth quadrant". PM Modi's government has faced criticism over the distress among farmers and small businesses.

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