RBI shouldn't hike rate for fear of Budget stoking inflation
Mumbai: In its penultimate monetary policy review of the fiscal, the Reserve Bank of India (RBI) on Wednesday maintained status quo on its key lending rates citing concerns over the rising trajectory of inflation.
The central bank said its repurchase rate, or the short-term lending rate for commercial banks, has been maintained at 6 per cent.
Consequently, the reverse repo rate remained at 5.75 per cent.
The RBI said “two of the key factors determining the cost of living conditions and inflation expectations – food and fuel inflation – edged up in November.”
“Accordingly, the MPC (Monetary Policy Committee) decided to keep the policy repo rate on hold,” the fifth bi-monthly monetary policy statement said.
“The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent… while supporting growth,” it added.
The decision was taken by the six-member MPC headed by RBI Governor Urjit R. Patel. Five members of the panel voted in favour of maintaining the key lending rate.
At its previous policy reviews, the central bank had kept its repo-rate unchanged at 6 per cent.
On the growth outlook, the RBI retained a real GVA (gross value added) growth for 2017-18 at 6.7 per cent, “with risks evenly balanced”.
“In the MPC’s assessment… capital raised from the primary capital market has increased significantly after several years of sluggish activity. As the capital raised is deployed to set up new projects, it will add to demand in the short run and boost the growth potential of the economy over the medium-term,” the policy statement said.
“Second, the improvement in the ease of doing business ranking should help sustain foreign direct investment in the economy. Third, large distressed borrowers are being referenced to the insolvency and bankruptcy code (IBC) and public sector banks are being recapitalised, which should enhance allocative efficiency.”
However, the RBI’s decision belied investors’ expectations.
The two key indices — S&P BSE Sensex and NSE Nifty50 — traded deep in the red just minutes after the RBI came out with its fifth monetary policy review.
The BSE Sensex dropped by almost 200 points, while the wider NSE Nifty50 fell by over 70 points.
Around 2.45 p.m., the wider Nifty50 of the National Stock Exchange (NSE) fell by 71.15 points or 0.70 per cent to trade at 10,047.10 points.
The barometer 30-scrip Sensitive Index (Sensex) of the BSE traded at 32584.88 points — down 217.56 points or 0.66 per cent — from its previous close.
With IANS inputs
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