The Reserve Bank of India kept the repo rate unchanged on Wednesday at 6% in its latest credit and monetary policy review, as was widely expected given the concerns on the rising headline inflation and firm global crude oil prices. The RBI’s 6% repo rate, last revised in August, is lowest in seven years since November 2010. “On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0 per cent,” the central bank said in its policy statement.
The central bank kept the policy stance neutral with the objective of limiting the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of plus/minus 2%, while supporting growth. “The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth,” the RBI said in its policy statement on Wednesday.
Earlier in October too, in its last credit and monetary policy review, RBI had kept repo rate unchanged at 6%, citing concerns over inflation projected to rise later in the year, which are apparently proving to be correct as the headline inflation is on the rise. India’s wholesale WPI inflation shot up to 3.59% in October, while the retail CPI inflation rose to 3.58% in the same month. Previously, in August, RBI cut repo rate by 25 basis points for the first time in this fiscal year given the then falling inflation.
Today’s RBI decision was on expected line, as the analysts had said that higher inflation, which may even breach its 4% target in the next few months, higher oil prices and the impact of the seventh pay commission would make the central bank to keep the repo rate on hold for the second time, and even for the third time in February too. A Reuters poll said that “policymakers have little room for manoeuvre and the outlook for rates beyond the next few months is exceptionally fuzzy”.