RBI maintains status quo, keeps repo rate unchanged
NEW DELHI, Dec 5: The Reserve Bank of India (RBI) on Wednesday kept the repo rate unchanged at 6.5 per cent in its December policy review. The reverse repo rate has also been maintained at 6.25 per cent.
The repo rate is the rate at which the RBI lends short-term money to the banks. And, the reverse repo rate is the rate at which the RBI borrows money from commercial banks.
"The decision of the MPC (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 central bank also retained the GDP growth projection for 2018-19 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.
After back-to-back hikes since June, the RBI had kept interest rates unchanged in October, surprising markets that had expected a rate hike to support the tumbling rupee and combat inflationary pressures from high oil prices. The RBI had, however, changed its stance from 'neutral' to 'calibrated tightening', revising its retail inflation projection on the upside.
A Reuters poll had predicted that the RBI's MPC would hold its repo rate steady this week, and cited that there will be only one more increase, most likely in March.
"We expect interest rates to be on hold until March," said A Prasanna, head of research at ICICI Securities Primary Dealership in Mumbai.
The six-member MPC, headed by RBI governor Urjit Patel had started its three-day meet on December 3 for the fifth bi-monthly monetary policy review of the current financial year.
Analysts said that the government pressure on the central bank to remove some major curbs on lending ahead of the election also means it is likely to take a more dovish stance.
Any dovishness from the RBI will be welcomed by bond traders who were until recently reeling under large losses.
The next meeting of the MPC is scheduled from February 5-7, 2019.
-Times of India