RBI keeps repo rate unchanged for third time at 6%
What's the story
The RBI has kept the repo rate unchanged at 6% for the third time, even as inflation reached a 17-month high. The reverse repo rate was held at 5.75%. The RBI Governor Urjit Patel-headed Monetary Policy Committee had last reduced the benchmark lending rate by 0.25 percentage points to a six-year low last August.
Definition
What is the repo rate?
Repo rate is the rate used by the Reserve Bank of India to lend money to commercial banks whenever a shortage of funds arises. The repo rate is also used to control inflation in the country: the RBI increases the rate to lower inflation.
Details
Decision in line with RBI's "neutral" stance
The decision of the MPC was in line with the RBI's "neutral" stance, Patel said while addressing media. It comes even as consumer inflation rose to a 17-month high of 5.21% in December, much above the RBI's 4% target, and global financial markets undergo a turmoil. Meanwhile, the marginal standing facility (MSF) rate and bank rate were fixed at 6.25%.
Predictions
Economic predictions for the upcoming months
Among other predictions, RBI has projected the 2017-18 GVA growth (value of goods and services) at 6.6%. The retail inflation forecast for the first half of 2018-19 was estimated at 5.1-5.6%, to come down to 4.5-4.6% in the second half. Inflation prediction for the fourth quarter of fiscal year 2018 is 5.1%. Stabilization of GST will augur well for the economy, RBI said.
Reax
'Move in line with expectations along with hawkishness'
The decision was more or less expected by experts. Aditi Nayar, principal economist, Icra Limited, said that with this move, "The MPC reiterated its commitment toward achieving the medium term inflation target of 4%." Anjali Verma, economist at Phillipcapital India, cautioned, "While we retain status quo from RBI for FY19, a risk to our call may come from higher inflation."