RBI keeps repo rate unchenaged: Fifth Bi-monthly Monetary Policy

Maintains policy stance of calibrated tightening

The Monetary Policy Committee (MPC) of the Reserve Bank of India has decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5%. Consequently, the reverse repo rate under the LAF remains at 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.

The decision of the MPC is consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth. The main considerations underlying the decision are set out in the statement below.

Inflation projection is lowered to 2.7-3.2% in H2:2018-19 and placed at 3.8-4.2% in H1:2019-20, with risks tilted to the upside. In the fourth bi-monthly resolution of October 2018, CPI inflation was projected at 4.0% in Q2 of 2018-19, 3.9-4.5% in H2 and 4.8% in Q1:2019-20, with risks somewhat to the upside. Excluding the HRA impact, CPI inflation was projected at 3.7% in Q2:2018-19, 3.8-4.5% in H2 and 4.8% in Q1:2019-20.

The projection for GDP growth for 2018-19 has been maintained unchanged at at 7.4% (7.2-7.3% in H2) as in the October policy, and for H1:2019-20 at 7.5%, with risks somewhat to the downside.

The MPC noted that the benign outlook for headline inflation is driven mainly by the unexpected softening of food inflation and collapse in oil prices in a relatively short period of time. Excluding food items, inflation has remained sticky and elevated, and the output gap remains virtually closed. The MPC also noted that even as escalating trade tensions, tightening of global financial conditions and slowing down of global demand pose some downside risks to the domestic economy, the decline in oil prices in recent weeks, if sustained, will provide tailwinds. The acceleration in investment activity also bodes well for the medium-term growth potential of the economy. The time is apposite to further strengthen domestic macroeconomic fundamentals. In this context, fiscal discipline is critical to create space for and crowd in private investment activity. Against this backdrop, the MPC decided to keep the policy repo rate on hold and maintain the stance of calibrated tightening.

Powered by Capital Market - Live News