ibusinesslines.com
ibusinesslines.com December 19, 2017


RBI leaves interest rate unchanged at 6 per cent

06 December 2017, 12:14 | Justin Tyler

India's Central Bank, Wary on Inflation, Set to Keep Rates on Hold

Since the last policy in early October inflation as measured by the Consumer Price Index has accelerated inching closer to the 4% mark which is the central bank’s medium-term target

The Monetary Policy Committee (MPC) on its fifth bi-monthly meeting made a decision to keep the repo rate at the current 6 percent, keeping inflation in mind.

Similarly, the NSE Nifty was trading lower by 78.70 points, or 0.77 per cent, at 10,039.55. The central bank retained its projection for gross value added growth, a measure of economic expansion it prefers, at 6.7 percent, the same as its forecast in October.

At its previous bi-monthly policy review in October, the RBI had maintained status quo on its repo rate at 6 per cent, citing risks to inflation and uncertainties on the external and fiscal fronts.

On Wednesday, after a two-day meeting, the RBI is likely to reiterate concern about inflation, as the annual rate increased to 3.58 percent in October.


I think the message to the market is clear that for a central bank, which is mandated to target inflation, when inflation is rising they will be probably taking pre-emptive actions and when inflation is falling they will be probably taking reactive action.

Another source of RBI discomfort is that core inflation, which excludes food and energy prices, has remained stubbornly high at around 4.5 per cent.

Global central banks are, meanwhile, mulling over policy normalization moves, with the US Federal Reserve expected to hike rates for a third time this year, in December. 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. The rate at which banks borrow money from the RBI by selling their surplus government securities to the central bank is known as "Repo Rate".

The figures showed that GDP accelerated to 6.3 percent in the three months to September after five quarters of slowing growth stretching back to early 2016. 42 of 48 economists in a Bloomberg survey had also expected the repo rate to be kept steady.



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