RBI leaves key repo rate un­changed

The Pak Banker - - FRONT PAGE - -AP

MUM­BAI: The Re­serve Bank of In­dia (RBI) on Wed­nes­day kept in­ter­est rates un­changed but hinted that mon­e­tary con­di­tions are likely to re­main tight be­cause of ris­ing risks to in­fla­tion. It raised its March-end Con­sumer Price In­dex (CPI) in­fla­tion fore­cast to 5.1% and pro­jected an in­fla­tion range of 5.1-5.6% in the first half of the next fis­cal year.

The mon­e­tary pol­icy com­mit­tee of the cen­tral bank de­cided to keep repo rate-at which the RBI in­fuses liq­uid­ity in the bank­ing sys­tem-on hold at 6%. Five mem­bers of the panel voted to keep rates un­changed, while Michael Pa­tra, ex­ec­u­tive di­rec­tor at the cen­tral bank, wanted to raise rates by 25 ba­sis points. One ba­sis point is one-hun­dredth of a per­cent­age point.

The in­fla­tion out­look is "clouded by sev­eral un­cer­tain­ties", noted the panel. It listed the stag­gered im­pact of hous­ing rent al­lowance in­creases by the state gov­ern­ment, ris­ing prices of crude oil and other com­modi­ties ow­ing to a pick-up in global growth, in­crease in min­i­mum sup­port prices (MSPs) for kharif crops, the bud­get's hike in cus­tom du­ties and the fis­cal slip­page as sev­eral fac­tors.

There is "need for vig­i­lance around the evolv­ing in­fla­tion sce­nario in the com­ing months", the panel noted.

How­ever, it voted to main­tain the neu­tral stance of mon­e­tary pol­icy, which es­sen­tially means fu­ture calls on rate di­rec­tion would be data-driven and in ei­ther di­rec­tion.

Wed­nes­day's de­ci­sion comes at a time when in­fla­tion as mea­sured by the CPI has been ac­cel­er­at­ing and has topped 4%, which is the cen­tral bank's medium-term tar­get, for two con­sec­u­tive months. Lat­est data shows CPI in­fla­tion ac­cel­er­ated to 5.21% in De­cem­ber, the fastest pace in 17 months, from 4.88%. The rise was due to the sta­tis­ti­cal im­pact of a low base. On growth, the RBI has cut the growth pro­jec­tions for the cur­rent fis­cal to 6.6% from 6.7% ear­lier. For the next fi­nan­cial year, it has pro­jected gross value added ( GVA) growth of 7.2%.

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