The Monetary Policy Committee, led by Reserve Bank of India (RBI) Governor Urjit Patel, announced its decision on Wednesday to keep the key interest rate - or repo rate - unchanged at 6 per cent. The move came despite a sharp slowdown in economic growth. The RBI cut its growth forecast for the year.
"The projection of real GVA growth for 2017-18 has been revised down to 6.7 per cent from the August 2017 projection of 7.3 per cent," the central bank said in its policy statement. The RBI had in August projected gross value added (GVA) growth of 7.3 per cent for 2017-18. GVA is a measurement of economic growth which strips away the effects of taxes and subsidies.
The Confederation of Indian Industry (CII) had called for an interest rate cut of 100 basis points for boosting the economic growth rate. The RBI had cut the repo rate by 25 basis points to a 7-year low of 6 per cent at its last meeting in August. All but 3 of 60 analysts surveyed by Reuters had expected the monetary policy committee to keep the repo rate unchanged on Wednesday.
Monetary Policy Committee expects Consumer Price Inflation to rise from current level
RBI cuts statutory liquidity ratio by 50 basis points to 19.50% from October 14 fortnight
Don't see much room for monetary policy adjustment, says RBI Deputy Governor Viral Acharya
One member of RBI's monetary policy committee voted for at least a 25 basis points rate cut
RBI Governor Urjit Patel on monetary policy review:
- Household consumption to get a boost from salary revision by state governments for civil servants
- Outlook for agriculture has been favourable
- Economic activity expected to recover led by services
- Teething problems linked to GST may be resolved soon
- Need to be cautious in injecting a fiscal stimulus
Five members of the monetary policy committee of RBI voted to keep rates unchanged
Decision of Monetary Policy Committee consistent with a neutral stance of monetary policy, says RBI
After a knee-jerk reaction post-RBI announcement, the Sensex started moving up. The Sensex was up 0.80 per cent, or 252 points, at 31,749. Analysts say a 50 basis points cut in SLR (statutory liquidity ratio) will have a positive impact on the banking stocks.
Ahead of the RBI rate decision, the Sensex index was up 190 points at 31,687 and the Nifty 50 was firm above 9,900. Rate sensitive stocks like banking, auto and realty were up between 0.2 per cent and 0.5 per cent. (Read more)
RBI keeps repo rate unchanged, lowers growth (GVA) forecast to 6.7% from 7.3%
The RBI is likely to be concerned by growing expectations that the government will ramp up spending to boost growth, potentially leading to a loosening of its current fiscal deficit target of 3.2 per cent of gross domestic product for the year ending in March.
Amid rising global oil and commodity prices, the RBI is expected to react with concern after a surge in food prices increased retail inflation to 3.36 per cent in August from a year earlier. (Read more)
Consumer inflation surged to a five-month high in August, threatening the RBI's target. The central bank has made a priority of maintaining consumer inflation at around 4 per cent - the midpoint of its mandated target of 2 per cent to 6 per cent. (Read more)
At 1:48 pm, the BSE Sensex was trading 207 points, or 0.65 per cent, higher at 31,704, while the broader Nifty index was up 64 points at 9,923. Of the 50-scrip index - Nifty, 35 stocks were trading in the green while the remaining 15 were trading lower. Sun Pharma, ITC, Aurobindo Pharma, RIL and Bharti Infratel were the top Nifty gainers - up between 2 per cent and 3.4 per cent. (Read more)
Though the monetary policy committee is under pressure to ease rates, the inflation outlook for the months ahead and a host of developments since the August review will stay their hand, global brokerage DBS said in a note to its clients.
The RBI is widely expected to hold its policy repo rate at 6.00 per cent, despite a sharp slowdown in economic growth, after inflation surged to a five-month high, threatening its target.
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