RBI keeps repo-rate unchanged at 6% for second consecutive time
What's the story
The RBI's six-member Monetary Policy Committee (MPC) has kept the repo rate unchanged at 6%, second time in a row, in its fifth bi-monthly policy review. The last time the committee had cut the lending rate was in August, when it was reduced by 25 basis points. In a Reuters poll, 52 of 54 economists had predicted a status quo on the policy rate.
Definition
What is the repo rate?
Repo rate is referred to the rate used by the RBI to lend money to commercial banks whenever there arises a shortage in funds. The repo rate is also used to control inflation in the country, where the RBI increases the rate to lower inflation.
Factors
What factors decided the move?
Experts had predicted constant repo rate after the latest review, which still stands at a seven-year low. They attributed the move to a rise in inflation readings and crude oil prices, cuts in GST rates and rising risk of fiscal slippages. Moreover, the US Federal Reserve is expected to hike interest rates in December, thus encouraging the RBI to refrain from a rate cut.
Future
Economic predictions for the upcoming months
The RBI, in its statement, said that it expects inflation to stay in the 4.3-4.7% bracket in the December and March quarters. This, after factoring in the effect of HRA up to 35 basis points. With the onset of winter, some seasonal moderation is also likely in prices of vegetables. Meanwhile, GST rate cuts should "translate into lower retail prices," it said.