RBI keeps repo rate unchanged at 6%, maintains neutral policy stance

Pablo Tucker
December 6, 2017

The Monetary Policy Committee (MPC) on its fifth bi-monthly meeting made a decision to keep the repo rate at the current 6 percent, keeping inflation in mind.

This could mean that the interest rates might not be coming down in a hurry and EMI payers may not have anything to cheer about.

RBI on Wednesday expectedly kept interest rates unchanged but raised the inflation forecast for the remainder of the current financial year to 4.3-4.7 per cent. The apex bank is expected to keep key rates unchanged as the GDP growth improved and inflation also recorded a seven-month high. BSE banks constituting 10 key banking stocks traded at 114 points or 0.40 per cent lower at 28,345 level.

That has sparked renewed calls from some government officials for the RBI, which has cut the repo rate by 200 bps since January 2015, to trim again. "The recent rise in worldwide crude oil prices may sustain, especially on account of the OPECs decision to maintain production cuts through next year", RBI said. So, I think this is pretty much the bottom for lending rates.

The RBI said the MPC remains committed to keeping headline inflation close to 4 percent on a durable basis.

"It's too early to predict beyond the February policy meet, we'll have to see how things shape up".

In its Fifth Bi-monthly Monetary Policy Statement, 2017- 18, RBI said that the second quarter growth was lower than the one that was projected in the October review, and the recent increase in oil prices may have a negative impact on margins of firms and Gross Value Added (GVA) growth.

Those fears, plus the prospect they would further reduce the scope to cut rates amid accelerating inflation, have sent benchmark 10-year bonds sharply lower since the RBI cut the repo rate on August 2, with the yield up more than 60 bps. 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.

Last week, there was welcome news of a recovery in annual economic growth in July-September to 6.3 percent, from 5.7 percent the previous quarter.

In a Bloomberg survey, most of the economists said that the repurchase rate will stay at 6 per cent, whereas only a few economists predicted a rate cut of.25 per cent.

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