Banking

RBI Keeps Rate on Hold, Stance 'Neutral'

Five of six members on the monetary policy committee voted for a hold, while one wanted a hike in the repo rate.

Mumbai: The Reserve Bank of India kept its policy rates on hold for the fourth straight meeting on Thursday and retained its “neutral” stance even as inflationary pressures have eased more than expected.

The RBI kept its policy repo rate unchanged at 6%, its lowest since November 2010, as unanimously expected by 61 respondents in a Reuters poll.

The reverse repo rate also remained unchanged at 5.75%.

Five of six members on the monetary policy committee voted for a hold, while one wanted a hike in the repo rate.

Inflation concerns have eased substantially following a crash in vegetable prices which is expected to keep price pressures soft for the next few months.

However, oil prices remain a risk, with India importing about 80% of its crude requirement.

Bonds rose after the RBI’s statement, while the rupee firmed and stocks extended early gains.

The ten-year benchmark bond yield fell to 7.19% from 7.28% before the announcement, while the rupee was trading at 64.95 to the dollar from 65.04 before. The main market index was up 1.8%.

Inflation easing, growth

The RBI projected economic growth of 7.4% for the current fiscal year that began on April 1.

It also lowered its April-September inflation projection to 4.7-5.1% from February’s 5.1-5.6%.

After hitting a 17-month high in December, retail inflation eased for the second straight month in February and by more than expected, to a four-month low of 4.44%. But it was still higher than the central bank’s medium term target of 4%.

That has prompted most market watchers to push back their forecasts for a rate hike to early 2019, from earlier estimates of the second half of this year.

While inflation fears have eased in the short-term, the RBI sounded cautious and opted to wait for more data instead of giving a clear indication of its policy path.

“The MPC reiterates its commitment to achieving the medium-term target for headline inflation of 4 percent on a durable basis,” the RBI said in a statement.

The RBI is also mindful of the pace of India’s economic recovery, after a loan-fraud scandal worth over $2 billion at the country’s second largest state lender Punjab National Bank.

Greater regulatory scrutiny in the wake of the scandal could make banks more wary of lending, slowing down business activity after India’s economy grew 7.2% in the October-December, its fastest in five quarters.

(Reuters)

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