Reserve Bank of India Keeps Repo Rates On Hold

File Pic:PTI

File Pic:PTI

On the basis of an assessment of the current and evolving macroeconomic situation at its meeting, the Reserve Bank of India (RBI) made a decision to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5 per cent.

The RBI has previously projected inflation at 3.9-4.5 percent by the end of March and growth at 7.4 percent for the current fiscal year to March 31.

Even as it sharply cut the inflation projection, the Reserve Bank of India on Wednesday maintained status quo on the policy repo rate.

The central bank also retained its "calibrated tightening" stance as expected.

The central bank said, come April 1, all new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans to Micro and Small Enterprises extended by banks will be linked to one of the four benchmarks - policy repo rate, the 91-day Treasury Bill yield, the 182-day Treasury Bill yield, any other benchmark interest rate of Financial Benchmarks India.

This is for the second time in a row that the central bank did not tinker with the interest rate.

The central bank has retained the GDP growth projection for 2018-19 at 7.4 per cent.

In October, inflation eased to 3.31 percent. But, it also foresaw inflation picking up again, projecting a rate of between 3.8-4.2 per cent in the first half of fiscal 2019/20, with risks tilted to the upside.

There are now clearer economic reasons to avoid going higher, analysts say. It is worth mentioning that the RBI, in its last bi-monthly meet in October, kept rates unchanged after two consecutive hikes starting June.

The government in turn has been putting pressure on the RBI to ease lending rules and nurse a weakened shadow banking sector at a time when banks laden with bad loans have become hesitant to lend.

"Inflation is likely to pick up later next year mostly driven by food balanced against some beneficial effect of lower commodity prices", said Prachi Mishra, India chief economist at Goldman Sachs, in Mumbai.

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