06 December,2017 05:43 PM IST | Mumbai | IANS
The central bank said its repurchase rate, or the short-term lending rate for commercial banks, had been maintained at 6 per cent
In its penultimate monetary policy review of the fiscal, the Reserve Bank of India (RBI) on Wednesday maintained status quo on key lending rates citing concerns over the rising trajectory of inflation. It retained the economic growth projection for the current fiscal.
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 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 (wholesale price index) 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 growth potential of the economy over the medium-term," it said.
At the media briefing following the announcement, RBI Governor Urjit Patel said he did not foresee any credit shortage that 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 neutral outlook. "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 two key indices -- S&P BSE Sensex and NSE Nifty50 -- traded deep in the red just minutes after the RBI came out with its fifth monetary policy review.
The BSE Sensex dropped by almost 200 points while the wider NSE Nifty50 fell by over 70 points. Nearing the close of trade on Wednesday, the wider Nifty50 of the National Stock Exchange (NSE) fell by 71.15 points or 0.70 per cent to trade at 10,047.10 points.
