RBI keeps repo rate unchanged at 6 percent, cuts growth forecast to 6.7 percent

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The Reserve Bank of India (RBI) on Wednesday kept its key lending rate the repo rate unchanged at 6 percent as widely expected.

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The reverse repo rate will remain at 5.75 per cent. The Central bank revised the growth projection down to 6.7 per cent.

The Reserve Bank of India's fourth bi-monthly monetary and credit policy review came at a time when the government is grappling with a slowing economic growth, whereas the central bank is staring at a rising headline inflation.

The six member monetary policy committee (MPC), headed by RBI governor Urjit Patel, voted in favour of the decision.

The committee also did not tweak the cash reserve ratio (CRR), which remained unchanged at 4 per cent, but cut statutory liquidity ratio (SLR) requirement by 50 basis points to 19.5 per cent.

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 within a band of +/- 2 per cent, while supporting growth," RBI said in its fourth policy review of 2017-18.

The RBI said that after a record low in June, inflation is trending up and estimated the headline number to touch 4.6 per cent by the March quarter. "The MPC decided to keep the policy stance neutral and monitor incoming data closely. The MPC remains committed to keeping headline inflation close to 4 per cent on a durable basis," it said.

The implementation of the GST so far also appears to have had an adverse impact, rendering prospects for the manufacturing sector uncertain in the short-term," RBI said. The MPC said structural reforms introduced in the recent period will likely be growth augmenting over the medium-to long-term by improving the business environment, enhancing transparency and increasing formalisation of the economy.

They also felt that with inflation rising, the RBI is at the end of its rate cutting cycle and may cut it once at best during the remainder of the fiscal.

Last week, a top finance ministry official said there is scope for an RBI rate cut at the next policy review as retail inflation continues to be low.

In its last policy review in August, the RBI reduced the repo rate by 0.25 per cent to 6 per cent in August, citing reduction in inflation risks. The rate cut was the first in 10 months and brought policy rates to a near 7-year low.

However, retail inflation rose to a five-month high of 3.36 per cent in August due to costlier vegetables and fruits. The consumer price index (CPI) based inflation was 2.36 per cent in July.

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