Friday, 14 December, 2018

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

File Pic:PTI File Pic:PTI
Ginger Lawrence | 05 December, 2018, 16:16

The Central Bank of the Republic of Turkey (CBRT) will continue to effectively use all policy instruments at hand to maintain price stability in 2019, according to its new fiscal and monetary policy for the new year announced Wednesday. Ravindra Dholakia, however, had voted to change the stance to neutral.

This is for the second time in a row that the central bank did not tinker with the interest rate. And, the reverse repo rate is the rate at which the RBI borrows money from commercial banks. However, it announced statutory liquidity ratio (SLR) will go down by 25 bps every quarter from January. One basis point is one-hundredth of one percentage point, i.e. 0.01 percent.

The RBI also announced an auction of a 12-day Government of India Cash Management Bill.

GDP growth retained at 7.4%: The MPC maintained GDP growth projections for 2018-19 has been projected at 7.4 per cent (7.2-7.3 per cent in H2) as in the October policy, and for H1:2019-20 at 7.5 per cent, with risks somewhat to the downside. For the period October-March, the GDP growth forecast is pegged between 7.2 and 7.3 percent. In October, inflation eased to 3.31 percent.

What could be RBI's likely rate action?

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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 has cut the inflation projection for second half of FY19 to 2.7%-3.2%.

The six-member MPC, headed by RBI governor Urjit Patel had started its three-day meet on December 3 for the fifth bi-monthly monetary policy review of the current financial year.

The board members include RBI governor Urjit Patel, RBI deputy governor Viral Acharya, executive director Michael Debabrata Patra, IIM Ahmedabad professor Ravindra H Dholakia, Delhi School of Economics director Pami Dua and Indian Statistical Institute Professor Chetan Ghate.