RBI keeps the repo rate unchanged, second time in last 2 years

In the recent monetary review meeting of RBI, the committee lowered inflation projection sharply to 2.7-3.2% from 3.9-4.5% for the second half of 2018-19, while maintaining the policy stance at ‘calibrated tightening’.

Mumbai: NP NEWS 24 ONLINE – On Wednesday, The Reserve Bank of India (RBI) kept its policy rates unchanged was predicted and cut its inflation forecast for the rest of the financial year, citing a sharp fall in crude oil prices and food “deflation”.

Repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.

The central government also plans to start proposals to improve policy rate transmission and credit discipline, besides initiating a predictable liquidity injection over the next six quarters through a phased reduction of 25 basis points (bps) every quarter in statutory liquidity ratio (SLR) from January.

The six-member monetary policy committee (MPC) voted universally to keep the policy rate unchanged at 6.5%. whereas Ravindra Dholakia, the MPC voted in favour of maintaining the earlier stance of calibrated tightening which means rate cut is off the table this cycle.

Dholakia voted to change the stance to neutral.

Taking into account to ease food inflation, crude prices and a rising rupee, MPC slashed its inflation projection to 2.7-3.2% from 3.9-4.5% for the second half of the current financial year while it expects inflation to quicken to 3.8-4.2% in the first half of the following year.

RBI Governor, Urijit Patel quoted, “Given the assessment that growth will remain healthy for the rest of the year, the MPC retained its stance at calibrated tightening so as to buy time to pause, reflect and undertake future policy action with more robust inflation signals. If upside risks do not materialize 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.”

On the other side, RBI has also assured that it will continue with increased government bond purchases through open market operations (OMO) to provide liquidity till March-end. The central bank has already done OMOs worth ₹1.36 trillion in this financial year and has announced a further tranche of ₹40,000 crore.