Citing higher risk to inflation, RBI holds key interest rates
GROWTH MEASURE Cuts growth projections for GVA to 6.7% from 7.3%; GDP growth fell to 5.7% in AprilJune
Home and auto loan rates are unlikely to change, after the Reserve Bank of India (RBI) left its key policy rate unchanged on Wednesday, citing higher risks to inflation.
The central bank slashed its growth forecast and raised its inflation forecast. Economists said rate cuts in the near term are unlikely as RBI waits for the growth and inflation situation to evolve.
On Wednesday, the six-member monetary policy committee left the repurchase (repo) rate – the rate at which RBI lends money to banks against bonds – unchanged at 6%. The decision was not unanimous. Ravindra Dholakia, one of the three external members of the panel, pressed for lowering rates by at least 25 basis points. One basis point is one-hundredth of a percentage point.
India’s economic growth decelerated to 5.7% in the quarter ended June, the slowest pace in three years, as it felt the lingering impact of the November invalidation of high-value banknotes. Production cuts and
MUMBAI:
destocking ahead of the 1 July implementation of the Goods and Services Tax (GST) also contributed to the slowdown.
Consumer price inflation quickened in August to 3.36% from 2.36% a month ago. The RBI cut the repo rate in its August policy by 25 basis points.
“From the borrowers’ standpoint, there is not going to be any change in the interest rates. Interest rates will largely remain where they are right now,” said Dharma Kirti Joshi, chief economist at rating company Crisil Ltd. “RBI is assessing if the slowdown in growth is a temporary or a long-lasting one. If there is more bad news on the growth front and RBI’s inflation estimate is undershot, doors for a rate cut could open up.”
The central bank cut its growth projections for gross value added, a measure of economic output, to 6.7% from 7.3% for the current financial year. It said the implementation of the GST has had an adverse impact on economic growth.