RBI keeps repo rate unchanged at 6.5%

06 December, 2018, 16:15 | Author: Brooke Harris
  • File Pic:PTI

The Reserve Bank of India on Wednesday, has kept the repo rate unchanged at 6.5% after its bi-monthly policy review.

"The time is apposite to further strengthen domestic macro-economic fundamentals", the central said in a statement following a monetary policy committee (MPC) meeting.

Any dovishness from the RBI will be welcomed by bond traders who were until recently reeling under large losses after the 10-year benchmark government security yield rose to 8.23 percent, before easing to 7.57 percent as inflation concerns abated.

Over the past five years, annual inflation saw its lowest level in April 2013, with 6.13 percent, and its highest level this October.

The RBI, however, lowered inflation forecast sharply for the second half (six months) of 2018-19 to 2.7 per cent-3.2 per cent. But, it also foresaw inflation picking up again, projecting a rate of between 3.8-4.2 per cent in the first half of fiscal 2019/20, with risks tilted to the upside. Experts believe the apex bank will maintain a status quo on interest rates easing inflation.

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The RBI also held its economic growth forecast for the fiscal year 2018/19 ending in March at 7.4 per cent.

While there was no rate action, the RBI said banks' Statutory Liquidity Ratio (SLR), which is a slice of deposits that banks have to invest in Central and State government securities, will be reduced by 25 basis points every quarter, beginning January 2019, until it reaches 18 per cent of deposits from 19.5 per cent now.

This is for the second time in a row that the central bank did not tinker with the interest rate. It is worth mentioning that the RBI, in its last bi-monthly meet in October, kept rates unchanged after two consecutive hikes starting June. "We perceive that India is slowly entering into a low inflation, slowing growth quadrant". PM Modi's government has faced criticism over the distress among farmers and small businesses.

Policymakers have to nurse the shadow banking sector after a series of debt defaults by a major infrastructure lender.

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