RBI leaves key repo rate unchanged

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%.