RBI's monetary review today, unlikely to cut interest rates

06 April, 2018, 03:22 | Author: Elaine Woods
  • Monetary policy: RBI lowers inflation target for first half of FY19

Keeping in view the uncertainties around inflation, the Reserve Bank of India (RBI) on Thursday kept the repo rate unchanged at 6%. The reverse repo, rate at which it borrows from banks and absorbs excess liquidity, will remain at 5.75 per cent.

Five of six members on the rate setting monetary policy committee voted to stand pat, while one voted for a hike.

"CPI inflation has eased to 4.4 percent in February and excluding the estimated impact of increase or adjustment in the house rent allowances for central government employees under the seventh Central Pay Commission, it is estimated at an even lower 4.1 percent", said RBI Governor Urjit Patel.

Meanwhile, RBI's professional forecasters said survey estimates inflation to be at 4.3 per cent and real GDP to grow at 7.3 per cent for fiscal 2019.

In the meeting, there were six members of monetary policy committee were present. It voted 5-1 in favour of status quo in policy rates. On the global front, the RBI assessed the potential trade wars, the advancing United States economy, a buoyant Euro Zone, and growth of the Japanese economy in eight straight quarters till Q4:2017.

RBI seemed confident on growth prospects and suggested that the "output gap is closing" although it mentioned downside risks on global trade protectionism, market volatility and weak domestic public finances.

He also pointed that the format of the financial statement as prescribed in schedule three of banking regulation act is not amenable to reporting financial statements under Ind AS and therefore the RBI has requested the government to amend the schedule and that was under consideration.

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Large amounts of funds raised through primary capital markets is another indicator that companies are investing and adding capacities to meet rising demand for their goods.

The MPC noted that growth has been recovering and the output gap is closing, which "is also reflected in a pick-up in credit offtake in recent months".

RBI has lowered inflation projection for 2018-19 to 4.7-5.1 percent in first half and 4.4 percent in H2.

The Deputy Governor of RBI, BP Kanungo, suspected that the rise of cryptocurrencies beyond a critical limit might bring financial instability.

In the same statement on Thursday, the RBI said that it had put together a working group to study the issue of issuing its own digital currency.

Besides, RBI has to take into consideration the rise in crude oil prices which temporarily touched Dollars 70 per barrel.

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