Central bank cited upside risks to inflation and excess liquidity in system for its decision to hold key rate.
Mumbai: The Reserve Bank left its benchmark lending rate unchanged at 6.25 per cent today for the third policy review in a row citing upside risk to inflation. It however increased the reverse repo rate at which it pays to lenders by 0.25 per cent to 6 per cent, narrowing the policy rate corridor.
Given the upside risks to inflation and excess liquidity in the system, the repo rate has been retained at 6.25 per cent but the reverse repo and MSF have been revised upwards by 0.25 per cent, the central bank said in the first bi-monthly monetary policy review of 2017-18.
The central bank said the policy decisions are unanimous. On the basis of gross value add, RBI sees the economy accelerating to 7.4 per cent in the current fiscal, up from 6.7 per cent in 2016-17.
However, the monetary authority said it is worried on three fronts on the inflation and the general economy. The first stems from a possible el nino impact on the monsoon. The second worry arises from the GST implementation and the third upside risks to inflation comes from the seventh pay commission award, according to the Monetary Policy Committee.
"For 2017-18, inflation is projected to average 4.5 per cent in the first half and 5 per cent in the second half," the RBI said.
"The main one stems from the uncertainty surrounding the outcome of the south west monsoon in view of the rising probability of an El Nino event around July-August, and its implications for food inflation," it said.