Economic Affairs Secretary Shaktikanta Das reflected on the unchanged repo rate announced by the RBI after the monetary policy review on Wednesday and said that the Central bank took the decision based on their understanding of the trends in inflation. Das said that the Reserve Bank of India’s report shows recognised that the Rabi sowing had increased, and was now 7-8% higher than the corresponding figure of the previous year. He further said that the domestic savings lying in India had come back into the banking systems and would enable banks to give loans at lower interest rates.
Das said that however, the money that has come back to the system would not auto automatically convert into white money. He said that although the RBI had predicted a GDP growth rate of about 7.1 pc, it would be a bit early for the Finance Ministry to rush to numbers but it does counter negative outlook on the GDP. Earlier today, RBI governor Urjit Patel and MPC shocked analysts and markets by keeping the repo rate unchanged at 6.25%. “The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and the medium-term target of 4 per cent within a band of +/- 2 percent, while supporting growth,” the policy statement said. Six members voted in favour of the monetary policy decision.
The move not to cut repo rate comes as a big surprise since most economists were of the view that post demonetisation, RBI would be compelled to cut rates. This is the first monetary policy review after Modi government’s demonetisation step and the fifth bi-monthly monetary policy statement for 2016-17. The decision comes at a time when India’s GDP grew at 7.2% versus 7.6% YoY in the second quarter of the current financial year.