By Prarthana Mitra
The central bank’s Monetary Policy Committee (MPC) on Thursday kept the repo and reserve repo rate unchanged at 6% and 5.75% respectively in its first policy review of the current fiscal year.
“The MPC reiterates its commitment to achieving the medium-term target for headline inflation of 4 percent on a durable basis,” the MPC announced in a statement after the meeting. The committee also kept the cash reserve ratio unchanged at 4%.
The gradual recovery of the economy and its stabilising effect on the inflation rate is likely to continue for the foreseeable future, reported official sources, cutting further inflation forecasts. However, the RBI doesn’t want to disturb the interest rates immediately despite recent polls recording the lowest retail inflation rate in February, for the first time in four months.
The central bank’s cautious steps in handling the matter so far had diminished hopes for a rate cut. Headed by RBI governor Urjit Patel, five out of the 6-member committee voted for a hold, with Michael Patra voting for a 25 basis point hike in rates.
Cautiously optimistic
The RBI is cautiously optimistic about the country’s economic growth, projecting an increase of 7.4% in the GDP for the 2018-19 financial year. It has also lowered its April-September inflation projection to 4.7-5.1% from Februarys projections of 5.1-5.6%.
The MPC has also categorically stated that early signs of investment recovery are visible which is perhaps responsible for RBI’s newfound confidence in the country’s prospective economic growth.
Other highlights
The 2-day meeting which began on Wednesday has also identified areas where inflation is likely to continue and a tightening of policies may be required. Although overall inflation rates are expected to be lesser than anticipated, the committee cautioned against risks emerging from volatile factors such as the fluctuating minimum support price (MSP), global crude oil prices, fiscal slippage and the upcoming monsoons.