RBI to Announce New Monetary Policy Today, May Keep Rates Unchanged

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

RBI to Announce New Monetary Policy Today, May Keep Rates Unchanged

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

Mumbai: In its penultimate monetary policy review of the fiscal, the Reserve Bank of India (RBI) on Wednesday maintained status quo on its key lending rates citing concerns over the rising trajectory of inflation.

India's central bank kept interest rates unchanged as rebounding inflation limits room to spur an economy struggling to recover from disruptive government policies.

Growth in gross domestic product picked up to 6.3 percent in July-September from a year earlier, halting a five-quarter deceleration but still lower than economists estimated. It is expected that the policy rates will be kept at 6 per cent, which is the lowest since November 2010.

The next meeting of the monetary policy committee is scheduled on February 6 and 7, 2018.

We are likely to see a turn in the rate cycle and things will start moving up because cost of funds will move up and the RBI has sent an explicit signal that is primarily concerned about inflation and narrowing output gap. That's low by Indian standards, but not far from the central bank's 4 percent target.

It said the reason for the decision was "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".

RBI said that the inflation rate is likely to get higher in near future.

The decision comes much to the expectation of experts and market-watchers who had predicted the stay in rates.

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. It was 6.3 per cent, a marginal increase from last quarters 5.7 per cent.

Soumya Kanti Ghosh, group chief economic adviser at State Bank of India, said the RBI will try to give a neutral perspective because the recovery in growth was still at a nascent stage.

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