RBI Monetary Policy Review: Repo rate unchanged at 6.5%; stance not softened

By: | Updated: December 5, 2018 3:18 PM

RBI Monetary Policy: Since the previous policy announcement, the Indian rupee has appreciated against the US dollar and moved above the psychologically crucial mark of 70.

RBI Monetary Policy: After two consecutive hikes starting June, the RBI had kept the key interest rates unchanged in the last policy review in October. (Reuters)

RBI Monetary Policy: As expected, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept the benchmark repo rate unchanged at 6.5% on Wednesday in its fifth bi-monthly monetary policy review for the current financial year 2018-19. A Reuters poll of 70 economists recently predicted the MPC would hold its repo rate steady in this December monetary policy review.

The six-member Monetary Policy Committee, headed by RBI Governor Urjit Patel, began its three-day meeting on Monday, December 3. The market was expecting another status quo from the central bank’s MPC upon moderate inflation, lower crude oil price and strengthening of the rupee. However, RBI’s monetary policy committee remained hawkish and maintained its calibrated tightening stance, even as inflation print was lower than the upper-ceiling.

“The decision of the MPC is consistent with the stance of calibrated tightening 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 main considerations underlying the decision are set out in the statement below,” RBI said in the statement.

Track LIVE Updates | RBI Monetary Policy Review: Repo Rate Decision; Urjit Patel’s comments; and more

Key Takeaways

  • MPC maintains status quo on rates
  • Cuts inflation forecast
  • Repo rate unchanged at 6.5%
  • Stance at ‘calibrated tightening’
  • Inflation forecast for H2 FY19 to 2.7-3.2% from earlier 3.9-4.5%
  • Inflation for H1 FY20 pegged at 3.8-4.2%
  • GDP growth projection for FY19 at 7.4%
  • RBI approves linking floating rate loans to external benchmark

After two consecutive hikes starting June, the RBI had kept the key interest rates unchanged in the last policy review in October, surprising the market that was hoping for an intervention amid the rupee rout. RBI governor Urjit Patel had defended the decision by saying that the central bank’s mandate is inflation targeting. He had also said then that the rate cut was off the table for the current year.

What has changed since last RBI MPC meet: Rupee appreciated; crude oil price softened; GDP growth slowed

Since the previous policy announcement, the rupee has appreciated against the US dollar and moved above the psychologically crucial mark of 70. Global crude oil prices too have softened significantly, slipping below USD 60 per barrel from USD 86. India’s economic growth slowed to 7.1 per cent in the September quarter, after peaking to an over two-year high in the first three months of this fiscal.

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