rbi rates: RBI keeps rates on hold citing inflation and growth

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rbi rates: RBI keeps rates on hold citing inflation and growth

MUMBAI: The Reserve Bank of India’s Monetary Policy Committee voted to keep interest rates on hold citing inflation and improved prospects. The MPC in its statement said that while inflation was expected to be marginally more than envisaged in October, growth as measured by gross economic value (GVA) would rise in the current fiscal by 7 per cent and 7.8 per cent in Q3 and Q4 respectively.

As a result of the MPC’s decision, the policy repo rate (the rate at which RBI lends to banks) remains unchanged at 6 per cent and the reverse repo rate at 5.75 per cent. In its fifth bi-monthly policy statement, the RBI said several significant recent developments augur well for growth however banks need to buttress these by passing on earlier rate cuts.

“In arriving at this decision the MPC took note of upward pressure on evolving cost of living conditions and rising input costs conditions which pose risks of pass through in retail prices,” said Urjit Patel, governor, RBI.

The RBI’s decision to keep rates on hold also appears to have been influenced by steady inflation expectations according to its household survey. Among the MPC members Chetan Ghate, Pami Dua, Michael Debabrata Patra, Viral V. Acharya and Urjit R. Patel were in favour of the monetary policy decision, while Dr. Ravindra H. Dholakia voted for a policy rate reduction of 25 basis points.

According to RBI, moderation in inflation observed in the first quarter of FY18 has, by and large, reversed and there is a risk that this upward trajectory may continue in the near-term. The other factors that would push up prices in the second half were a delayed impact of the increase in housing rent allowance for government employees and the decision of oil producing countries to impose production cuts. “On the whole, inflation is estimated in the range 4.3-4.7 per cent in Q3 and Q4 of this year, including the HRA effect of up to 35 basis points, with risks evenly balanced,” the RBI said.

On growth, the RBI said that Q2 growth was lower than that projected in the October resolution but retained its gross value added forecast for FY18 at 6.7 per cent with risks evenly balanced. The statement noted that while there have been shotfalls in crop production and upward pressure on oil prices on the positive side there has been a pick-up in credit growth, which would get an additional boost following recapitalization of public sector banks. Among the positive developments RBI has highlighted the rebound in capital from the equity markets, resolution of bad loans and the improvement in ease of doing business in India.

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