Report rate, reverse repo rate remain unchanged

06 December, 2018, 05:41 | Author: Eric Barnett
  • A worker cleans the exterior of an office building in Mumbai's central financial district

The six-member monetary policy committee (MPC) voted unanimously to keep the policy rate unchanged at 6.5%. However, 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, as consumption demand moderated and farm sector displayed signs of weakness.

"Even as inflation projections have been revised downwards significantly and some of the risks pointed out in the last resolution have been mitigated, especially of crude oil prices, several uncertainties still cloud the inflation outlook", the bank said in its statement.

Besides CRR, Banks have to invest certain percentage of their deposits in specified financial securities like Central Government or State Government securities.

The central bank also introduced proposals to improve policy rate transmission and credit discipline, besides initiating a predictable liquidity injection over the next six quarters, starting January, through a phased reduction of 25 basis points (bps) every quarter in statutory liquidity ratio (SLR).

"Taking all these factors into consideration and assuming a normal monsoon in 2019, inflation is projected at 2.7-3.2 per cent in H2 FY2018-19 and 3.8-4.2 per cent in H1 FY2019-20, with risks tilted to the upside", the RBI said.

In its previous policy review in October, the apex bank had projected the retail inflation to be around 3.9-4.5 per cent in the October-March period of 2018-19.


Governor Patel also ruled out any possibility of a cut in cash reserve ratio (CRR) to enhance liquidity.

Weaker global oil prices and domestic food prices are expected to drag the headline inflation rate below projections.

This is for the second time in a row that the central bank did not tinker with the interest rate.

"We believe that the RBI is likely to change stance to "neutral" in early 2019", said Aurodeep Nandi, India economist with Nomura.

A pause in rate hikes is a welcome relief for Prime Minister Narendra Modi's ruling party as it prepares for an election that must be called by May.

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