RBI keeps repo rate unchanged at 6.5%, lowers inflation forecast sharply

Monetary policy review RBI keeps repo rate unchanged at 6.5

RBI to announce its fifth bi-monthly monetary policy review of the current financial year this afternoon

For the first half of 2019-20, the GDP is been projected at 7.5 per cent. RBI said inflation in the second half of the current fiscal is projected at is projected at 2.7-3.2 per cent.

Not only did the 6-member committee decide to keep the repo rate (the rate at which RBI lends money to banks) unchanged, but also kept its "calibrated tightening" stance in tact.

Maintains "calibrated tightening" stance: The central bank maintained "calibrated tightening" stance that it adopted in October 5 policy citing 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.

"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.

It said the projected inflation path remains unchanged after adjusting for the HRA impact of central government employees as this impact dissipates completely from December 2018 onwards.

All six members of the MPC voted to keep the rates on hold.

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

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.

Governor Patel also ruled out any possibility of a cut in cash reserve ratio (CRR) to enhance liquidity. In October, inflation eased to 3.31 percent. It is worth mentioning that the RBI, in its last bi-monthly meet in October, kept rates unchanged after two consecutive hikes starting June. The growth in Gross Domestic Product (GDP) in July-September is the lowest in three quarters but better than 6.3 per cent in the same period of the previous year. PM Modi's government has faced criticism over the distress among farmers and small businesses.

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