RBI maintains status quo; keeps repo rate unchanged at 6 per cent

RBI maintains status quo; keeps repo rate unchanged at 6 per cent

RBI maintains status quo; keeps repo rate unchanged at 6 per cent

While the decision of the central bank's monetary policy committee (MPC) in the first bi-monthly monetary policy statement for fiscal 2019 has been along expected lines, there is a clear admission in the policy statement that inflation no longer poses a serious macro risk. The RBI kept the repo rate and reverse repo rate unchanged at 6 percent and 5.75 percent respectively. Five of the six-member MPC voted for the decision, while one sought a hike.

This is the fourth policy review in sequence in which the MPC has kept the Repo Rate unchanged. Positives like a cooling down in CPI inflation to 4.4 per cent for February had led to speculation over RBI's rate call.

In the meeting, there were six members of monetary policy committee were present. Given the Government's stance on affordable housing, as also the Prime Minister's initiative, "Housing for All by 2022", the real estate industry would have been happier with some move on part of the RBI that would have further reduced home loan interest rates.

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"Ongoing normalisation of interest rates in the USA, higher global crude oil prices, and the looming threat of escalation in global trade war warranted a cautious approach".

RBI seemed confident on growth prospects and suggested that the "output gap is closing" although it mentioned downside risks on global trade protectionism, market volatility and weak domestic public finances.

"This is also reflected in a pick-up in credit offtake in recent months".

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The official statement comes from the RBI deputy governor B P Kanungo, who commented: "To ring fence the RBI regulated entities (banks) from the risk of dealing with entities associated with virtual currencies, they (banks) are required to stop having business relations with the entities dealing in virtual currencies forthwith".

Some analysts termed the MPC view as a very dovish commentary, while both the equity and bond markets cheered the RBI policy resolution statement. Normal monsoon and effective food supply management was seen as mitigating factors.

"Also, companies polled by the RBI expect input and output prices to rise, going forward", he added. Excluding the impact of HRA revisions, CPI inflation is projected at 4.4-4.7 per cent in the first half of FY2018-19 and 4.4 per cent in the second half.

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Besides, RBI has to take into consideration the rise in crude oil prices which temporarily touched United States dollars 70 per barrel. GDP inching to 7.2% and now is projected to 7.3 in the coming Financial Year.

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