Published: Thu, December 06, 2018
Markets | By Otis Pena

RBI keeps repo rate unchanged at 6.5%

RBI keeps repo rate unchanged at 6.5%

The central bank said that several uncertainties, including the risk of sudden reversal in food prices, uncertain outlook on crude oil prices and possible fiscal slippage, were clouding the inflation outlook.

Mumbai: The Reserve Bank of India (RBI) on Wednesday left the key interest rates unchanged and also maintained "calibrated tightening" stance at its fifth bi-monthly monetary policy. CRR is the amount of funds that banks have to keep with the central bank as a proportion of their deposits.

The central bank also retained the GDP growth projection for FY19 at 7.4 per cent. The 10-year government bond yield closed at 7.441%, a level last seen on 13 April, from its previous close of 7.573%.

After back-to-back hikes since June, the RBI had kept interest rates unchanged in October, surprising markets that had expected a rate hike to support the tumbling rupee and combat inflationary pressures from high oil prices.

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Since then the RBI's pause on rates has been in contrast to other Asian central banks, including South Korea, Philippines and Indonesia, that have raised rates. The RBI had, however, changed its stance from "neutral" to "calibrated tightening", revising its retail inflation projection on the upside.

At present, the Cash Reserve Ratio (CRR) balance of banks at the end of the day is being disclosed with a lag of 2-3 days, while the details of the currency in circulation are being released with a lag of one week. The economic growth in the second half of 2018-19 has been predicted at nearly 7.3 per cent.

The RBI, however, lowered inflation forecast sharply for the second half (six months) of 2018-19 to 2.7 per cent-3.2 per cent. Economists suggested that the RBI kept its stance unchanged as it may be too early to alter its stance. "We perceive that India is slowly entering into a low inflation, slowing growth quadrant".

The government in turn has been putting pressure on the RBI to ease lending rules and nurse a weakened shadow banking sector at a time when banks laden with bad loans have become hesitant to lend.

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