RBI keeps repo rate unchanged at 6 percent, stance stays at 'neutral'

Monetary policy: RBI lowers inflation target for first half of FY19
RBI keeps repo rate unchanged at 6 percent, stance stays at 'neutral'
Author

06 April, 2018

The policy repo rate is kept unchanged at 6%, which is the lowest since November 2010.

Five of six members on the rate setting monetary policy committee voted to stand pat, while one voted for a hike.

Even as RBI has switched growth forecasts from gross value added (GVA) to gross domestic product (GDP) in the interest of global comparability of economic performance, the MPC's expectation that India's GDP growth would improve to 7.4% in fiscal 2019 from 6.6% in fiscal 2018 appears to be highly overstated.

The Reserve bank of India today retained its "neutral" stance even as inflationary pressures have eased more than expected.

Secondly, worldwide crude oil prices have become volatile in the recent period, with a distinct hardening bias in the second half of March, even as the increase in shale production was more than expected.

Bonds rose after the RBI statement to their highest levels since early January, while the rupee firmed slightly and stocks extended early gains with state banks rising sharply.

While inflation has softened since the last meeting of RBI, the crude oil prices after brief fall are on the upswing again.

On the downside, the central bank noted that "rising trade protectionism and financial market volatility could derail the ongoing global recovery".

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The Monetary Policy Committee, headed by RBI Governor Urjit Patel, had last reduced the benchmark lending rate by 0.25 percentage points to six per cent in August 2017, bringing it to a six-year low.

The Economic Survey tabled in Parliament on January 29, had estimated that India would re-establish itself as the world's fastest growing major economy with GDP expanding by 7-7.5 percent in 2018-19.

But many economists doubt whether that pace can be sustained.

Taking these factors into consideration, RBI revised CPI inflation for 2018-19 to 4.7-5.1% in H1:2018-19 and 4.4% in H2, including the HRA impact for central government employees, with risks tilted to the upside. But it remains higher than the RBI's medium term target of 4 percent.

The apex bank also maintained that the Consumer Price Index (CPI) inflation forecast for the second half of FY19 is cut to 4.4 percent from 4.5 - 4.6 percent.

With 10 big mobile application- based payment services alone enjoying over 1.5 crore installations the RBI in its monetary policy report on Thursday asked all payment system operators to store data related to payments and users only in India. But these currencies have slumped in recent months as regulatory scrutiny increased; bitcoin traded around $6,670 on the Bitstamp exchange on Thursday.

Investors, however, are in a wait-and-watch mode ahead of the RBI's first bi-monthly policy meet for FY19, they added.


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