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RBI keeps repo rate unchanged at 7-year-low of 6 pc amid inflation concerns

THE ASIAN AGE.
Published : Oct 4, 2017, 2:40 pm IST
Updated : Oct 4, 2017, 3:11 pm IST

This was fourth bi-monthly policy review of 2017-18 by RBI's Monetary Policy Committee.

RBI Governor Urjit Patel at an earlier press conference after the monetary policy review meeting in Mumbai. (Photo: PTI)
 RBI Governor Urjit Patel at an earlier press conference after the monetary policy review meeting in Mumbai. (Photo: PTI)

Mumbai: The Reserve Bank of India on Wednesday kept the benchmark repo rate unchanged at 6 per cent -- the lowest in almost in seven years -- while taking forward its neutral policy stance.

Consequently, the reverse repo rate under the LAF remains at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25 per cent. The central bank also revised the growth projection down from 7.3 per cent to 6.7 per cent, RBI said in a statement.

The RBI said that after hitting a record low level in June, inflation is trending up and estimated the headline number to touch 4.6 per cent by the March quarter.

Read: Full text of the Monetary Policy Committee's statement

Expressing concern over the teething problems of GST and the weakening of the manufacturing sector, the MPC in its report said: "The loss of momentum in Q1 of 2017-18 and the first advance estimates of kharif foodgrains production are early
setbacks that impart a downside to the outlook. The implementation of the GST so far also appears to have had an adverse impact, rendering prospects for the manufacturing sector uncertain in the short-term".

"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," the bank said.

This comes against the backdrop of a three-year low GDP of 5.7 per cent and a rising trend in inflation which was at 3.36 per cent in August, within the RBI's benchmark target of 4 per cent.

A report by SBI had predicted RBI was likely to maintain status quo on key lending rate in Tuesday's policy review as it is "stuck in a conundrum" of low growth, mild inflation and global uncertainties.

This decision to keep the repo rate unchanged mars the hope of the government and the industry which were rallying for a rate cut in view of the sluggish growth in the economy. 

Industry body Assocham had written to the MPC to cut the interest rates at least by 25 basis points, given the challenges being faced by the economy which needs immediate measures for revival of growth.

This was the fourth bi-monthly policy review by RBI's Monetary Policy Committee that was formed last year on the lines of Federal Open Market Committee in the US. 

While Dr. Chetan Ghate, Dr. Pami Dua, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Dr. Urjit R. Patel were in favour of the monetary policy decision, Dr. Ravindra H. Dholakia voted for a policy rate reduction of at least 25 basis points.

Tags: repo rate, reserve bank of india (rbi), monetary policy committee (mpc)
Location: India, Maharashtra, Mumbai (Bombay)