HEADLINES:
December 17 2017
RBI keeps key rates unchanged, raises inflation forecast
07 December 2017

The growth forecast remains unchanged at 6.7%

The monetary policy committee of the Reserve Bank of India on Wednesday decided to keep the repo rate unchanged at 6%, for the second consecutive meeting, while maintaining its neutral stance. This means banks are unlikely to revise their home or car loan rates anytime soon.

While observing that moderation in inflation (excluding food and fuel) observed in Q1 of 2017-18 had, ‘by and large’, ‘reversed’, the six-member committee said inflation may continue to accelerate in the near term. The RBI revised its inflation projection to the range of 4.3-4.7% for the last two quarters of the current financial year.

The central bank had projected an inflation range of 4.2-4.6% in the last policy meeting held in October.

“The recent rise in international crude oil prices may sustain…any adverse supply shock due to geopolitical developments could push prices [up] even further,” it said. Crude oil and food prices drove up retail inflation to 3.58% in October.

The MPC’s stance on interest rates was on the expected lines. Except R.H. Dholakia, all the other members of the committee voted to retain status quo. Mr. Dholakia, the most dovish among the members, wanted a 25 basis point rate cut. (100 basis point = 1 percentage point).

“It (MPC) also decided to persevere with the neutral stance of monetary policy and reiterated its commitment to keep consumer price inflation at 4% while supporting growth,” Urjit Patel, Governor, RBI, said during the post-policy press conference.

“In taking this decision, the MPC noted the upside pressure from food and fuel prices and evolving cost of living conditions and inflation expectation,” he added.

On growth, while observing that Q2 growth for the quarter ended September was lower than that projected in its October resolution, the central bank has retained the full-year GVA growth projection at 6.7%.

SBI Chairman Rajnish Kumar said the RBI’s decision to maintain status quo was in consonance with market expectations.

 

 

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