As widely expected, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Wednesday kept the key repo rate unchanged at 6.5 per cent, while maintaining the stance of 'calibrated tightening' of policy. This is for the second time in a row that the central bank did not tinker with the interest rate. The reverse repo rate also stands unchanged, at 6.25 per cent. "The decision of the Monetary Policy Committee 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 per cent within a band of +/-2 per cent, while supporting growth," RBI said.
The statutory liquidity ratio (SLR), meanwhile, was cut by 25 basis points to 19.25 per cent from January 1, 2019. The central bank also said that SLR would be reduced by 25 basis points every quarter until it reaches the 18 per cent level.
The central bank also retained the GDP growth projection for FY19 at 7.4 per cent. For the first half of 2019-20, the GDP is been projected at 7.5 per cent.
RBI said inflation in the second half of the current fiscal is projected at is projected at 2.7-3.2 per cent. While the decision on keeping the policy rate unchanged was unanimous, Ravindra H Dholakia voted to change the stance to neutral.
It was RBI's fifth bi-monthly monetary policy meet of financial year 2018-19.
Repo rate is the rate at which the central bank lends money to commercial banks in case of a fund shortage, while the reverse repo rate refers to the rate at which the central bank borrows money from commercial banks to suck liquidity out of the system. SLR is the proportion of its net demand and time liabilities that a commercial banks need to maintain in liquid assets like gold and government papers before providing credit to their own customers.
The committee maintained the calibrated tightening stance.
Most analysts had expected RBI to hold rates to support the economy, even as most of them had predicted a hike just over a month ago.
A sharp decline in crude oil prices and the recent recovery in the value of the rupee vis-a-vis the US dollar have provided the much-needed relief to the economy. After hitting a high of $86/barrel in October, the oil prices have retreated 29 per cent, mainly because supply of crude oil has outstripped its demand. As a result, the domestic currency has declined 5.34 per cent (as of Tuesday's close).
The next policy is scheduled to be announced on February 7, 2019.