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RBI maintains key rates, GVA projection, concerned over inflation (Roundup)

Wednesday - December 6, 2017 10:04 pm , Category : BUSINESS
 RBI maintains key rates, GVA projection, concerned over inflation (Roundup)
RBI maintains key rates, GVA projection, concerned over inflation (Roundup)

Mumbai Dec 6 (IANS) In its penultimate monetary policy review of the fiscal the RBI on Wednesday maintained status quo on key lending rates while citing concerns over rising inflation. It also retained economic growth projection for the 2017-18 fiscal.



The Reserve Bank of India (RBI) move came even as Indian industry expressed disappointment while the government said a neutral policy stance reflected recognition of the fact that inflation remained "firmly under control".

The central bank said its repurchase rate or the short-term lending rate for commercial banks had been maintained at 6 per cent. Consequently the reverse repo rate remained at 5.75 per cent.

The RBI also raised the inflation forecast for the remainder of the current fiscal to 4.3-4.7 per cent. It said "two of the key factors determining the cost of living conditions and inflation expectations -- food and fuel inflation -- edged up in November".

"Accordingly the MPC (Monetary Policy Committee) decided to keep the policy repo rate on hold " the fifth bi-monthly monetary policy statement said.

"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... while supporting growth " it added.

Official data last month showed that India s annual rate of inflation based on wholesale prices rose to 3.59 per cent in October due to an exponential rise in food prices.

In addition the consumer price index (CPI) or retail inflation for October rose to 3.58 per cent from 3.28 per cent in September.

The decision was taken by the six-member MPC headed by RBI Governor Urjit R. Patel. Five members of the panel voted in favour of maintaining the key lending rate.

At its two previous policy reviews the central bank had kept its repo or repurchase rate unchanged at 6 per cent.

On the growth outlook the RBI retained a real GVA (gross value added) growth which includes taxes for 2017-18 at 6.7 per cent "with risks evenly balanced".

On the positive side the RBI said there there had been some pick up in credit growth in recent months.

"Recapitalisation of public sector banks may help improve credit flows further " the policy statement said.

"In the MPC s assessment capital raised from the primary capital market has increased significantly after several years of sluggish activity. As the capital raised is deployed to set up new projects it will add to demand in the short run and boost the economy s growth potential over medium term " it said.

At the media briefing following the announcement RBI Governor Urjit Patel said he did not foresee any credit shortage as demand grows and the economy picks up.

"Our latest data on bank credit shows we re on the uptick on credit growth. There is more credit flowing in than at the time of our last policy review in October " he said.

The Monetary Policy Committee also decided to continue with its neutral stance.

Elaborating on this Patel said the macro data since October did not warrant a change in the RBI s neutral stance.

"Data flow will determine what we do on policy. All possibilities are open as we look at the inflation as well as growth data in the coming months."

However the RBI s decision belied investors expectations. The wider Nifty50 of the National Stock Exchange (NSE) fell by 74.15 points or 0.73 per cent to close on Wednesday at 10 044.10 points.

The barometer 30-scrip Sensitive Index (Sensex) of the BSE closed at 32 597.18 points -- down 205.26 points or by 0.63 per cent on its previous close.

Reacting cautiously to the development the government said it had taken note of the RBI maintaining status and said the central bank s neutral policy stance reflected recognition of the fact that inflation remained "firmly under control".

Industry however expressed their disappointment.

"Ficci is disappointed with the RBI s decision to hold on to the policy rate at the current level. A downward revision would have boosted sentiment and supported the growth momentum that we are seeing building up following the second quarter GDP numbers " said industry chamber Ficci s President Pankaj Patel.

The Confederation of Indian Industry (CII) said that reduction in interest rates would give the necessary signal that fiscal and monetary policy are working in consonance to give a boost to growth.

"We are hopeful that going forward the RBI would shift its policy stance from neutral to accommodative and effect a cut in interest rates to revive domestic demand which would provide a fillip to broad-based investment activity which has yet to take off in a big way " said CII s Director General Chandrajit Banerjee.

"India Inc continues to remain over-leveraged while the consumer demand is still subdued. Benign interest rates are solutions to both these issues. As for inflation the RBI has genuine concerns but the message must be picked up by the government to fix the supply side especially in the items of common use " Assocham s President Sandeep Jajodia said in a statement.

--IANS
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