RBI Keeps Key Lending Rate Unchanged At 6%, Cautions On Inflation

The decision came after surging oil and food prices pushed the annual consumer inflation to a 17-month high of 5.21% in December.

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RBI Keeps Key Lending Rate Unchanged At 6%, Cautions On Inflation

"There is ... need for vigilance around the evolving inflation scenario in the coming months," RBI said.


Mumbai: The Reserve Bank of India (RBI) on Wednesday kept its main repo rate at 6 per cent and retained its "neutral" bias for a third consecutive policy meeting, warning of the need to focus both on inflation and on nurturing an economic recovery.

All but two of 60 economists in a Reuters poll predicted the repo rate would be kept at the lowest level since November 2010.

The reverse repo rate was held at 5.75 percent.

The decision came after surging oil and food prices pushed the annual consumer inflation to a 17-month high of 5.21 per cent in December - well above the RBI's 4 per cent target.

Inflation is expected to accelerate further after the union budget last week widened its fiscal deficit target for the fiscal year starting in April to help finance a sharp increase in spending on rural areas and health-care.

"There is ... need for vigilance around the evolving inflation scenario in the coming months," the RBI said in its statement.

The benchmark 10-year bond yield fell 3 basis points from levels before the decision, while the rupee was trading at 64.15 per dollar, slightly stronger. The broader NSE share index was marginally higher.

Five members of the monetary policy committee voted to keep rates unchanged, with one member, RBI Executive Director Michael Patra, voting for a 25 basis points hike.

Before Wednesday's meeting, speculation on a rate hike this year was increasing. The Reuters poll showed 14 out of 35 analysts believe the RBI will hike rates by the end of 2018, up from 7 out of 27 in December.

Bond investors have priced in rate hikes, with the benchmark 10-year bond yields rising more than 100 basis points since July, the biggest move since a crisis in 2013 with the rupee.

But questions remain about how soon the RBI can tighten, given the economy is expected to grow only 6.7 per cent in the current fiscal year - the slowest pace in about three years.

"The (Monetary Policy) Committee is of the view that the nascent recovery needs to be carefully nurtured and growth put on a sustainably higher path through conducive and stable macro-financial management," the RBI said in its statement.

The RBI has held the repo at 6 per cent since a 25 basis point cut in August. It took advantage of a period of extraordinary low inflation to cut rates by 200 bps between early 2015 and August 2017.




 
© Thomson Reuters 2018


(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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