The Reserve bank of India today retained its “neutral” stance even as inflationary pressures have eased more than expected. RBI has kept its policy rates on hold for the fourth straight meeting. The policy repo rate is kept unchanged at 6%, which is the lowest since November 2010. The reverse repo rate also remained unchanged at 5.75%.
In the meeting, there were six members of monetary policy committee were present. In which five of six members voted for a hold, while one wanted a hike in the repo rate.
"The MPC decided to keep the policy repo rate on hold and continue with the neutral stance. The MPC reiterates its commitment to achieving the medium-term target for headline inflation of 4% on a durable basis," said the first bi-monthly monetary policy for 2018-19.
The repo rate, at which the central bank lends short-term money to other banks, will continue to stay at 6 percent. The reverse repo rate at which it borrows from banks and absorbs excess liquidity will remain at 5.75 percent. The headline inflation after surging to a concerning 5.2 percent in December last year, cooled off to 5.07 percent in January and further to 4.4 percent in February.
“The inflation print for February did turn out to be softer than our projection,” Patel told reporters after announcing the monetary policy statement. “However, MPC looks ahead. We noted there are several uncertainties around the baseline inflation path which is why we kept the stance neutral and rate unchanged.”
RBI has been asked by the government to target inflation at 4%, plus or minus 2% and its rise beyond the comfort zone will put pressure on the central bank not cut interest rate or repo rate.
Following are the highlights of the first bi-monthly monetary statement for 2018-19:
-RBI keeps key lending rate (repo) on hold at 6 percent;
-Reverse repo rate stands at 5.75 percent, bank rate at 6.25 percent;
-Inflation projection revised downwards to 4.7-5.1 percent in H1 of FY19 & 4.4 percent in H2;
-Recent volatility in crude prices has imparted uncertainty to the near-term outlook on inflation;
-RBI flag risks to inflation from fiscal slippages at the level of states;
-GDP growth projected to strengthen from 6.6 in FY18 to 7.4 percent in FY19;
-GDP growth projected at 7.3-7.4 percent in H1 of FY19 & 7.3-7.6 percent in H2;
-Clearer signs of revival in investment activities; exports to get a boost from an improvement in global demand;
*Next meeting of 6-member MPC on June 5 and 6.