Monday, 22 October, 2018

Reserve Bank of India maintains key rates, concerned over inflation

Urjit Patel Reserve Bank of India maintains key rates, concerned over inflation
Theresa Hayes | 06 December, 2017, 12:14

The Reserve Bank of India (RBI) said the benchmark repo rate - the level at which it lends to commercial banks - would remain unchanged at 6.0 percent. The RBI kept its growth forecast for the current fiscal year ending March 31 unchanged at 6.7 per cent. RBI however raised inflation forecast to 4.3-4.7 per cent in third and fourth quarters of current fiscal.

It said food prices had been volatile recently and increases in worldwide crude oil prices were likely to continue in the near future. The central bank retained its projection for gross value added growth, a measure of economic expansion it prefers, at 6.7 percent, the same as its forecast in October.

"The MPC remains committed to keeping headline inflation close to 4 percent on a durable basis", the statement said. Another factor it could take into account is the rise in crude prices to $61.60 per barrel at the end of November from $55.36 in October, analysts have been reported to have said.

Rising global crude prices do not bode well for inflation in net oil importer countries such as India. "Second, the impact of HRA by the Central Government is expected to peak in December", the RBI said. In August, the bank had cut repo rate by 25 basis points.

Reverse repo rate is the rate of interest offered by the RBI when banks deposit their surplus funds with it for short periods.

The decision comes much to the expectation of experts and market-watchers who had predicted the stay in rates.

The GDP growth rate showed an improvement in the second quarter of the financial year 2017-18.

The Reserve Bank of India (RBI) is working very closely with the government on a $32.43 billion bank recapitalisation plan it had outlined in October to deal with huge bad loans at state-run lenders.

Nevertheless, Modi's advisers said India's rates are too high.

However, most economists don't expect the RBI to raise rates in this meeting as a precautionary measure because it could hamper the ongoing economic recovery.