RBI keeps key rates unchanged
The Reserve Bank today kept benchmark interest rate unchanged. Keeping its policy stance at 'neutral', the Reserve Bank of India RBI raised its inflation forecast to a range of 4.2 to 4.6 per cent during remainder of current fiscal as against 4 to 4.5 per cent previously stated.
However to spur the economy, it lowered the proportion of deposits banks need to invest in specified securities, such as government bonds, to 19.5 per cent from 20 per cent effective October 14, freeing over Rs 55,000 crore for banks to lend.
RBI has kept rates unchanged in its fourth bi-monthly monetary review of the current financial year of 2017-18. There is no change in repo rate and reverse repo rate. The decision to keep the status quo was taken by the six member Monetary Policy Committee by a 5:1 majority. Ravindra Dholakia, voted in favor of a 25 basis point reduction in the repo rate.
The repo rate will remain at 6.0 percent. The repo rate is the short term rate at which the RBI lends to commercial banks. The reverse repo rate is kept at 5.75 percent. The reverse repo rate is the rate at which the RBI borrows cash from banks. In the previous monetary policy review, the central bank had reduced the repo rate by 0.25 percent to 6.0 percent.
The market had already factored in a status quo monetary policy. And the positive trend continued in the market. The Sensex climbed 174 points to 31,672.
The RBI has increased inflation for the second half from 4.2 to 4.6 percent. The central bank has taken this step due to uncertainty over rising crude oil prices and kharif crop production across the world. The Monetary policy Committee also discussed the impact of GST at its meeting and has reduced economic growth rate from 7.3 to 6.7 per cent.
The Central bank said there is a need to bring investment back on track, so that credit off take will increase to create new capacity in industry. RBI recommended government should focus on building more infrastructure, by restarting stalled infrastructure projects in the public sector, and also said that the Centre should increase the ease of doing business, including by further simplifying GST.
"The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth," RBI said in its fourth policy review of 2017-18.