RBI keeps its rates intact, says inflation likely to rise

Mumbai: The Reserve Bank of India on Wednesday kept interest rates unchanged for the third time in a row, saying higher government spending would accelerate inflation, and warned of risks from a wider fiscal deficit.

The six-member Monetary Policy Committee headed by RBI governor  Urjit Patel retained the repo rate at six per cent and the reverse repo rate at 5.75 per cent. It kept a neutral stance at its sixth and last bi- monthly monetary policy review of the current fiscal.

Inflation, which surged to a 17-month high of 5.21 per cent in December, is likely to accelerate further after the 2018-19 Budget widened the fiscal deficit target to finance higher rural spend and the mega healthcare plan.

“We are still awaiting some of specifics on that. We have said there could be an impact, but have not said how much,” said Dr Patel. “There is not enough information at the moment on what the costing would be.”

The RBI upped its inflation forecast to 5.1 per cent for the current fourth quarter of 2017-18, ending March 31.

Dr Patel and four other MPC members had voted for the status quo on the interest rate while one member, Michael Patra, favoured a 25 basis point rate hike.