RBI keeps interest rates unchanged

RBI Monetary Policy Meet

In view of the current and evolving macroeconomic situation in the country, the RBI on Wednesday chose to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5 per cent.

"I would avoid those questions because we are here discussing the monetary policy resolution", Patel said when asked about Section 7 of the RBI Act during a media conference after the bank's bi-monthly meeting of the Monetary Policy Committee (MPC) here.

The decision to keep the repo rate unchanged at 6.50 per cent was as predicted by 64 of 70 analysts in a Reuters poll.

It has come to light that only one out of the six members voted in favour of easing the stance. The central bank said that several uncertainties, including the risk of sudden reversal in food prices, uncertain outlook on crude oil prices and possible fiscal slippage, were clouding the inflation outlook.

The central bank said starting in the January-March quarter of 2019 it would begin to lower banks' mandatory bond holding ratios, by 25 basis points each quarter until it reaches 18 percent of deposits.

While the Statutory Liquidity Ratio now remains unchanged at 19.5%, the RBI has said it will be gradually reduced to 18% over the next six quarters.

Over the past five years, annual inflation saw its lowest level in April 2013, with 6.13 percent, and its highest level this October.

The RBI cut its inflation projection to 2.7-3.2 per cent for the second half (October 2018-March 2019), with risks tilted to the upside, against 3.9-4.5 per cent projected earlier. For the H1 of FY20, inflation is projected at 3.8 to 4.2%.

According to Section 7 (1) in The Reserve Bank of India Act, 1934, "The Central Government may, from time to time, give such directions to the RBI as it may after consultation with the Governor of the Bank consider necessary in the public interest".

RBI also retained the GDP growth projection for FY19 at 7.4 percent.

Since embarking on a tightening cycle in June, the RBI has raised its policy repo rate by 50 basis points, with the last increase to 6.50 percent made in August.

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

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