RBI maintains status quo, repo rate unchanged at 6.5%

In a complete contrast to market and expert expectations, Reserve Bank has maintained status quo on all key policy rates in the fourth bi-monthly monetary policy review announced this afternoon. The six member monetary policy committee, MPC headed by Governor Urjit Patel decided to keep the policy repo rate unchanged at 6.5 percent and the reverse repo rate at 6.25 percent.
 
Repo rate is the rate at which RBI lends to banks generally against government securities while the reverse repo is the rate at which RBI borrows money from the banks. Both the rates are key determinants for customers availing loans from banks. RBI has informed that the marginal standing facility rate and the Bank Rate too remain at 6.75 percent.
 
MPC had hiked the repo rates in its June and August policy reviews by 25 basis points each while maintaining a neutral stance. This time, the RBI has changed its stance to calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for headline inflation of 4 percent while supporting growth.
 
RBI has said that inflation and growth outlook remain clouded due to escalating trade tensions, volatile and rising oil prices, and tightening of global financial conditions. It has added that effect of government’s hike in MSP for RABI crops is also uncertain. RBI has however added that recent excise duty cuts on petrol and diesel is likely to moderate retail inflation.
 
Considering these factors, RBI has projected an inflation of 4 percent in the second quarter of this fiscal while it is likely to stay between 3.9 - 4.5 percent in the second half of this year. 
 
According to RBI, inflation is likely to stay at 4.8 percent in the first quarter of financial year 2019-20 with risks on the upside.
 
On the growth front, RBI has retained GDP growth projection for 2018-19 at 7.4 percent with risks broadly balanced. #casansaar (Source - PIB)