Reserve Bank stands pat on rates

The Reserve Bank of India (RBI) has left the key interest rate or the repo rate unchanged at 6.5% during the fifth bimonthly monetary policy review on Wednesday — which was on expected lines — while maintaining the ‘calibrated tightening’ stance though it reduced the inflation projection sharply. All the six members of the Monetary Policy Committee (MPC) voted in favour of status quo on repo rate while only one member R.H. Dholakia voted for change in the stance to neutral. During the post-policy interaction, RBI Governor Urjit Patel said the central bank was ready to take policy action if upside risks to inflation did not materialise. “If the upside risks we have flagged do not materialise or are muted in their impact as reflected in incoming data, there is a possibility of space opening up for commensurate policy actions by the MPC,” Dr. Patel said. Consumer price index-based inflation is projected at 2.7-3.2% for the second half of the current financial year and 3.8-4.2% in the first half of the next financial year. In the previous policy review held in October, inflation was projected at 3.9-4.5% for the second half of FY19 and 4.8% in the first quarter of FY20. Oil price decline The sharp fall in inflation comes on the back of 30% decline in crude oil prices in November compared with October. “We expect a formal stance change in early 2019 and a long pause, but rate cut risks are rising,” analysts at Nomura Holdings said. Retains GDP growth rate The RBI decided to retain GDP growth rate for 2018-19 at 7.4% and estimated growth at 7.5% for the first half of the next financial year. “Given the downside risks to growth, we believe that some more members could tilt towards a change in stance by the next meeting in February,” said Abheek Barua, chief economist, HDFC Bank. S.C. Garg, Secretary, Economic Affairs, while ‘welcoming’ the RBI assessment on growth and inflation outlook, however said, “The policy stance probably required calibration.” In a move to boost credit flows, the central bank has decided to reduce the statutory liquidity ratio (SLR) requirement for banks to 18% of net demand and time liabilities from 19.5% over the next six quarters, by 25 bps each in every quarter. The first reduction of 25 basis points will take effect in the quarter starting in January 2019.

Source  :  https://www.thehindu.com/todays-paper/tp-business/reserve-bank-stands-pat-on-rates/article25675612.ece

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