RBI holds repo rate but hikes reverse repo at 6 percent; projects inflation at 4.5 pct

The Reserve Bank of India (RBI) on Thursday kept its repo rate unchanged at 6.25 percent, but made changes in the reverse repo rate at 6 percent after all the six members of the monetary policy committee (MPC), headed by Reserve Bank of India Governor Urjit Patel, voted in favour of the decision.

"For 2017-18, inflation is projected to average 4.5 percent in the first half of the year and 5 percent in the second half," said Reserve Bank of India (RBI) Governor Urjit Patel.

He said that the MPC believes that the inflation developments have to be closely and continuously monitored, with food price pressures kept in check so that inflation expectations can be re-anchored.

Patel further added that there is scope for transmission of rates.

"The GVA growth is projected to strengthen to 7.4 percent in 2017-18 from 6.7 percent in 2016-17, with risks evenly balanced," added Patel while quoting that the banks have reduced lending rates, although further scope for a more complete transmission of policy impulses remains, including for small savings/administered rates.

"The Marginal standing facility (MSF) rate and the Bank Rate is reduced to 6.50 percent from 6.75 percent with no significant impact on bond markets," added Patel.

MPC says that volatility in crude oil prices and its lagged pass-through are impacting the trajectory of CPI inflation excluding food and fuel.