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RBI likely to maintain repo rate in Wednesday's review

IANS  |  Mumbai 

The RBI is expected to keep its key interest rate unchanged at its

penultimate review of the fiscal on Wednesday at a time when inflation - the

central bank's key concern - has softened, as has GDP growth, according to the figures

for the second quarter ending in September.

At its previous bi-monthly review in October, the Reserve of India's (RBI) Monetary

Policy Committee (MPC) held its repo, or short term lending rate, unchanged at 6.5 per cent

in a context of rising posing an inflationary risk as well as a weakening


data earlier showed that the consumer price index (CPI), or in

October, fell to its lowest in a year at 3.31 per cent owing to lower inflation, from 3.7 per cent in the previous month.

Besides, from the depths it had plunged, the rupee has since appreciated to a level of just over 70 to the US dollar.

Moreover, global have softened sharply from $86 per barrel in October to

currrent levels of around $60 amidst reports that and have reached a deal to cut output so as to shore up falling prices.

Meanwhile, data on November 30 showed the pace of India's GDP growth slowed

during the July-September quarter to 7.1 per cent, from 8.2 per cent in the previous one,

mainly on the back of a drop in manufacturing, agriculture and

"RBI may get the much needed elbow room to keep the policy rate unchanged in the

forthcoming bi monthly policy review on December, 5," said US rating agency subsidiary Ratings and Pant.

"Based on the September quarter GDP growth and likelihood of lower growth in the second

half of the year, chances of fiscal slippage are very high. The central is expected to

stay on hold," he added.

Belying market expectations of a rate hike in October, the RBI held its repo rate unchanged

in the context of an uncertain global economic scenario but turned hawkish in its stance,

moving to one of calibrated tightening from the 'neutral' it has maintained over its six

previous policy reviews.

Elaborating on the change of stance to "calibrated tightening", RBI said that it implied that "in this cycle, a rate cut is out of the table and we are

not bound to increase rates every time we meet.

"With this stance we have two options, we can either increase rates or hold them," he said.

A "neutral" stance allows the RBI to move either way on rates.

On the decision to hold the repo rate, Patel said that "actual inflation outcomes, especially

in August, were below projections as the expected seasonal increase in prices did not

materialise and inflation excluding and fuel moderated".

The RBI has lowered its inflation projection for the July-September quarter to 4.0 per cent,

and between 3.9-4.5 per cent for the second half of the fiscal "with risks somewhat to the


India's budgetary fiscal deficit for the April-October period at Rs 6.49 lakh crore has exceeded the target for the full fiscal, accounting for 103.9 per cent of the budgeted target of Rs 6.24 lakh crore, mainly owing to slow revenue growth.

The RBI's policy review is coming at a time of slowdown in growth and private investment, and soon after the ongoing liquidity crunch has provoked a tiff between the government and the central

The government's differences with the RBI centres on four issues - the former wants liquidity support to head off any credit freeze risk, a relaxation in capital requirements for lenders, relaxing the prompt corrective action (PCA) rules for banks struggling with accumulated non-performing assets (NPAs), or bad loans, and support for micro, small and medium enterprises.

The current liquidity crunch, particularly among non-banking companies, follows a series of defaults last month by the privately-run and banks hesitating to lend after a series of scams, most notably the Rs 14,000 crore fraud on state-run reported in February.



(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Mon, December 03 2018. 19:32 IST