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Monetary policy: Defying govt’s hopes, RBI keeps key rates unchanged

In its fifth Bi-monthly Monetary Policy on Wednesday, the Reserve Bank of India kept the key rates unchanged. The central bank had reduced the benchmark lending rate by 0.25 percentage points to 6% in August, bringing it to a 6-year low, however, kept it unchanged in October. 

The six member monetary policy committee (MPC) today, chaired by RBI governor Urjit Patel, decided to maintain the status quo by 5:1. 

RBI kept the repo rate unchanged at 6 per cent, reverse repo rate at 5.75 per cent and bank rate at 6.25 per cent. The GVA (gross value added) prediction for FY18 also remained unchanged at 6.7 per cent. 

The RBI said that the second quarter growth was lower than what was projected. 

RBI also said it has decided to rationalise charges on Debit card transactions to give a further fillip to digital payments.

RBI continued with its neutral stance and also reiterated CPI inflation at 4 per cent while supporting growth. The MPC also took note of upside pressure of food and oil prices and evolving high standard of living expectations, RBI governor Urjit patel said. 

RBI said that the inflation rate is likely to get higher in near future. 

“In view of MPC the economic reforms should contribute in nurturing higher growth of economy”, Patel said. “Bank recapitalisation bonds would be front-loaded”, RBI governor added. 

The RBI has extended the inflation rate for Q3 from 4.3% to 4.7%. 

 While the government was hoping for a rate cut experts were of opinion that it might be unlikely.

On Wednesday, after a two-day meeting, the RBI reiterated concern about inflation, as the annual rate increased to 3.58 per cent in October. That’s low by Indian standards, but not far from the central bank’s 4 per cent target.

Another source of RBI discomfort is that core inflation, which excludes food and energy prices, has remained stubbornly high at around 4.5 per cent.

The Consumer Price Index (CPI) for October had accelerated to a seven-month high of 3.5% from a year ago, even as a Reuters poll of 26 economists showed that there are expectations that inflation will breach its 4% target in the next few months. 

Last week, there was welcome news of a recovery in annual economic growth in July-September to 6.3 per cent, from 5.7 per cent the previous quarter.

The next monetary policy meeting will be held in February 6, next year. 

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