As widely expected by the markets and experts, the Reserve Bank of India (RBI), in its first monetary policy of this financial year on Thursday, kept repo rate unchanged at 6.25 per cent, while it raised the reverse repo rate to 6 per cent.
As widely expected, the Reserve Bank of India (RBI), in its first monetary policy of this financial year on Thursday, kept repo rate unchanged at 6.25 per cent, while it raised the reverse repo rate to 6 per cent. “Given the upside risks to inflation and excess liquidity in the system, the repo rate has been retained at 6.25 per cent but the reverse repo and MSF have been revised upwards by 0.25 per cent,” the central bank said in the first bi-monthly monetary policy review of 2017-18.
RBI Governor Urjit Patel had kept key interest rate on hold at 6.25 per cent during his last policy review on February 8. He had said then that he would wait for more clarity on the inflation trend and impact of demonetisation on growth before going in for change in the key policy rate.
All six Monetary Policy Committee (MPC) members voted in favour of RBI monetary policy
Below are the key highlights from RBI’s monetary policy review and the press conference:
- keeps repo rate unchanged at 6.25 per cent
- raises reverse repo rate to 6 per cent from 5.75 per cent
- RBI narrows policy rate corridor due to liquidity flush; revises marginal standing facility rate downwards by 0.25 per cent to 6.5 per cent
- Economic indicators point to modest improvement in microeconomic outlook
- Upside risk to inflation from GST, poor monsoon, pay commission award
- Pegs GVA growth for current fiscal at 7.4% as against 6.7% last year
- RBI sees inflation at average 4.5 per cent in H1 FY18
- forecasts GDP growth at 7.4 per cent for the current fiscal, up from 6.7 pc in 2016-17
- manages currency expansion via reverse repo rate
- Risk evenly balanced around inflation trajectory; upside risk from uncertainty about monsoon
- Upside risk to inflation arises from one-off effect of Goods and Services Tax
- Several indicators point to modest improvement in microeconomic outlook
- Changes in liquidity management are to drain out excess cash in the system
- RBI in talks with govt to introduce standing deposit facility (SDF), which will help manage liquidity effectively
- Liquidity measures undertaken today to reduce cost of borrowing by 0.25 per cent for the lower segment: Patel